Proposed Amendment to Prohibited Transaction Exemption 84-24, 76004-76032 [2023-23781]
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Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules
See SUPPLEMENTARY INFORMATION
below for additional information
regarding comments.
FOR FURTHER INFORMATION CONTACT:
Susan Wilker, (202) 693–8540 (not a
toll-free number), Office of Exemption
Determinations, Employee Benefits
Security Administration, U.S.
Department of Labor.
SUPPLEMENTARY INFORMATION:
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Part 2550
[Application No. D–12060]
ZRIN 1210–ZA33
Proposed Amendment to Prohibited
Transaction Exemption 84–24
Comment Instructions
Employee Benefits Security
Administration, U.S. Department of
Labor.
ACTION: Notice of Proposed Amendment
to Prohibited Transaction Exemption
84–24.
AGENCY:
This document contains a
notice of pendency before the
Department of Labor (the Department) of
a proposed amendment to Prohibited
Transaction Exemption (PTE) 84–24, an
exemption from certain prohibited
transaction provisions of the Employee
Retirement Income Security Act of 1974
(ERISA) and the Internal Revenue Code
of 1986 (the Code). The amendment
would affect participants and
beneficiaries of plans, Individual
Retirement Account (IRA) owners, and
certain fiduciaries of plans and IRAs.
DATES:
Public Comments. Comments are due
on or before January 2, 2024.
Public Hearing. The Department
anticipates holding a public hearing
approximately 45 days following the
date of publication in the Federal
Register. Specific information regarding
the date, location, and submission of
requests to testify will be published in
a notice in the Federal Register.
Applicability Date. The Department
proposes to make the final amendment
effective 60 days after it is published in
the Federal Register.
ADDRESSES: All written comments
concerning the proposed amendments
should be sent to the Employee Benefits
Security Administration, Office of
Exemption Determinations, U.S.
Department of Labor through the
Federal eRulemaking Portal and
identified by Application No. D–12060.
Federal eRulemaking Portal: Visit
https://www.regulations.gov. Follow the
instructions for sending comments.
Docket: For access to the docket to
read background documents and
comments, including the plain-language
summary of the proposal required by
the Providing Accountability Through
Transparency Act of 2023, or comments,
please go to the Federal eRulemaking
Portal at https://www.regulations.gov.
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SUMMARY:
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Warning: All comments received will
be included in the public record
without change and will be made
available online at regulations.gov. This
includes any personal information
provided, unless the comment includes
information claimed to be confidential
or information whose disclosure is
restricted by statute. If you submit a
comment, EBSA recommends that you
include your name and other contact
information, but DO NOT submit
information that you consider to be
confidential, or otherwise protected
(such as Social Security number or an
unlisted phone number), or confidential
business information that you do not
want publicly disclosed. If EBSA cannot
read your comment due to technical
difficulties and cannot contact you for
clarification, EBSA might not be able to
consider your comment. The
www.regulations.gov website is an
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means EBSA will not know your
identity or contact information unless
you provide it. If you send an email
directly to EBSA without going through
regulations.gov, your email address will
be automatically captured and included
as part of the comment that is placed in
the public record and made available on
the internet.
Background
As described elsewhere in this edition
of the Federal Register, the Department
is proposing to amend the regulation
defining when a person renders
‘‘investment advice for a fee or other
compensation, direct or indirect’’ with
respect to any moneys or other property
of an employee benefit plan, for
purposes of the definition of a
‘‘fiduciary’’ in section 3(21)(A)(ii) of
ERISA and in section 4975(e)(3)(B) of
the Code. The Department also is
proposing amendments to existing PTEs
75–1, 77–4, 80–83, 83–1, 86–128, and
2020–02 elsewhere in this edition of the
Federal Register.
The Department is proposing to
amend PTE 84–24 to address specific
issues that Insurers confront in
complying with the current conditions
of PTE 2020–02 when distributing
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annuities through independent agents.
The ERISA and Code provisions at issue
generally prohibit employee benefit
plan and IRA fiduciaries from engaging
in self-dealing in connection with
transactions involving these plans and
IRAs. Currently, PTE 84–24 allows these
fiduciaries to receive compensation
when plans and IRAs enter into certain
insurance and mutual fund transactions
that the fiduciaries recommend, as well
as certain related transactions. The
proposed amendment would provide
exemptive relief to fiduciaries who are
Independent Producers that recommend
annuities from an unaffiliated Insurer to
Retirement Investors on a commission
or fee basis if certain protective
conditions are met.
The Department is proposing this
amendment on its own motion pursuant
to its authority under ERISA section
408(a) and Code section 4975(c)(2) and
in accordance with procedures set forth
in 29 CFR part 2570, subpart B (76 FR
66637 (October 27, 2011)).1
Current PTE 84–24
Currently, under PTE 84–24, plans
and IRAs may purchase insurance or
annuity contracts or investment
company securities, and insurance
agents or brokers, pension consultants,
and principal underwriters may receive
compensation as a result of these
purchases.2 Originally proposed in
1976,3 PTE 84–24 covers several
transactions in connection with the
purchase of insurance and annuity
contracts and the purchase and sale of
securities issued by an investment
company.
PTE 2020–02
When the Department finalized PTE
2020–02 in December 2020, the
Department explained that insurance
companies could rely on either PTE
2020–02 or PTE 84–24 regardless of
whether they sell their products through
captive or independent agents. In the
preamble to the final PTE 2020–02, the
1 Reorganization Plan No. 4 of 1978 (5 U.S.C.
App. 1 (2018)) generally transferred the authority of
the Secretary of the Treasury to grant administrative
exemptions under Code section 4975 to the
Secretary of Labor.
2 As defined in Section X(d), the term ‘‘Individual
Retirement Account’’ or ‘‘IRA’’ means any plan that
is an account or annuity described in Code section
4975(e)(1)(B) through (F), including an Archer
medical savings account, a health savings account,
and a Coverdell education savings account. While
the Department uses the term ‘‘Retirement Investor’’
throughout this document, the exemption is not
limited only to investment advice fiduciaries of
employee pension benefit plans and IRAs. Relief
would be available for investment advice
fiduciaries of employee welfare benefit plans with
an investment component as well.
3 41 FR 56760 (Dec. 29, 1976), finalized as PTE
77–9, 42 FR 32395 (June 24, 1977)
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Department stated that insurance
companies working with independent
agents can satisfy the conditions of PTE
2020–02 related to the required policies
and procedures either by supervising
independent insurance agents or by
contracting with insurance
intermediaries to do so.4 In April 2021,
the Department provided further
guidance in a set of Frequently Asked
Questions (FAQs) regarding compliance
with the exemption.5 Specifically,
Question 18 of the FAQs provided that:
When an independent insurance agent
recommends an annuity under the
exemption, the agent and the financial
institution (e.g., the insurance company)
must satisfy the exemption’s conditions,
including the fiduciary acknowledgement
and the Impartial Conduct Standards with
respect to that transaction. In such cases, the
insurance company must ensure that it has
adopted policies and procedures to ensure
compliance with the Impartial Conduct
Standards and to avoid incentives that place
the firm’s or agent’s interests ahead of the
interests of retirement investors. While the
independent agent may recommend products
issued by a variety of insurance companies,
PTE 2020–02 does not require insurance
companies to exercise supervisory
responsibility with respect to the practices of
unrelated and unaffiliated insurance
companies. When an insurance company is
the supervisory financial institution for
purposes of the exemption, its obligation is
simply to ensure that the insurer, its
affiliates, and related parties meet the
exemption’s terms with respect to the
insurance company’s annuity which is the
subject of the transaction.
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Since issuing PTE 2020–02 and
posting the FAQs on its website, the
Department has conferred with
representatives of insurance companies
that distribute annuities through
independent agents, regarding their
compliance with the conditions of PTE
2020–02. At the meetings, the
representatives almost universally
asserted that the main compliance
challenge they face in complying with
PTE 2020–02 is that they cannot
effectively exercise fiduciary authority
over independent insurance agents who
do not work for any one insurance
company and are not obligated to
recommend only one company’s
annuities. According to the insurance
4 ‘‘Insurance company Financial Institutions can
comply with the new exemption by supervising
independent insurance agents, or by creating
oversight and compliance systems through
contracts with insurance intermediaries. The
Financial Institution and/or intermediary would
address incentives created with respect to
independent agents’ recommendations of the
Financial Institution’s insurance or annuity
products.’’ 85 FR 82798, 82835 (Dec. 18, 2020).
5 https://www.dol.gov/sites/dolgov/files/ebsa/
about-ebsa/our-activities/resource-center/faqs/newfiduciary-advice-exemption.pdf
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company representatives, unlike a
broker-dealer that can readily control
the products its representatives
recommend and the compensation they
receive, insurance companies working
with independent agents have much
less authority over the conduct and
compensation of independent agents.
These insurance companies also face
much greater liability risk if they are
required to provide a fiduciary
acknowledgement, because they do not
have the necessary control over the
independent agents to manage the
independent agent’s product offerings
and do not know the full range of
products the independent agent is
authorized to sell. Thus, despite the
Department’s compliance guidance
provided in the preamble to PTE 2020–
02 and FAQ 18, these parties
represented to the Department that they
prefer relying on existing PTE 84–24.
While acknowledging these concerns,
the Department continues to believe that
insurance companies can effectively
exercise fiduciary oversight with respect
to independent agents’
recommendations of their own products
under PTE 2020–02. PTE 2020–02 is a
broad, flexible, and principles-based
approach that applies across different
financial sectors and business models
and provides relief for multiple
categories of Financial Institutions and
Investment Professionals, including
insurance companies selling their
products through independent agents,
and it would continue to be so if the
Department adopts the amendments to
PTE 2020–02 that it is proposing today.
The Department is proposing to amend
PTE 84–24, however, to provide a
narrowly tailored, alternative exemption
allowing independent insurance agents
to receive commissions from insurance
companies with respect to annuity
recommendations.
As amended, PTE 84–24 would not
require the insurance company to
provide a fiduciary acknowledgement,
and the insurance company would not
be treated as a fiduciary merely because
it exercised oversight responsibilities
over independent insurance agents
under the exemption.6 Instead, the
proposed amendment would require the
independent agent that recommends the
annuity to make the fiduciary
6 For purposes of this disclosure, and throughout
the exemption, the term fiduciary status is limited
to fiduciary status under Title I, the Code, or both.
While this exemption and the SEC’s Regulation Best
Interest both use the term ‘‘best interest,’’ the
Department retains interpretive authority with
respect to satisfaction of this exemption.
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acknowledgement,7 and the insurance
company selling its product through the
independent agent only would be
required to exercise supervisory
authority over the independent agent’s
recommendation of its own products.
The proposed amended exemption
would be limited to commissions or fees
as defined in the amendment, which
would have to be fully disclosed to the
Retirement Investor.
Overview of the Proposed Amendment
to PTE 84–24
The Department is proposing to
amend PTE 84–24 so that investment
advice fiduciaries would rely on a new
section of PTE 84–24 for independent
insurance agents (called Independent
Producers) selling non-securities
annuities or other insurance products
not regulated by the Securities and
Exchange Commission (SEC) to
Retirement Investors. The proposed
amendment would exclude investment
advice fiduciaries from the current relief
in PTE 84–24 while proposing relief
under a new section of the exemption
with specific conditions for
independent insurance agents providing
investment advice. The Department’s
objective in proposing this amendment
is to provide a level playing field for all
investment advice fiduciaries.
To rely on the investment advice
relief in this proposed amendment to
PTE 84–24, the Independent Producers
would have to sell annuities of two or
more unrelated Insurers. Independent
Producers that sell or recommend
investment products other than
annuities, such as mutual funds, stocks
and bonds, and certificates of deposit
must rely on PTE 2020–02 when
receiving fees or other compensation in
connection with investment
recommendations related to those
products. The amended PTE 84–24
would provide relief from the
prohibited transaction rules only for the
receipt of fully disclosed commissions
or fees in connection with annuity
recommendations or other insurance
products not regulated by the SEC. In
other respects, the proposed amendment
to PTE 84–24 for investment advice
would provide very similar protections
to Retirement Investors as PTE 2020–02
and create a level playing field for all
investment advice provided to
Retirement Investors regardless of the
investment products that are
recommended.
The Department is proposing to
amend PTE 84–24 to exclude
7 For purposes of this disclosure, and throughout
the exemption, the term fiduciary status is limited
to fiduciary status under Title I, the Code, or both.
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investment advice fiduciaries from the
existing relief provided in Section II,
which would be redesignated as Section
II(a). The proposed amendment would
add Section II(b), which would provide
investment advice fiduciaries with relief
from the restrictions of ERISA sections
406(a)(1)(D) and 406(b) and the taxes
imposed by Code section 4975(a) and (b)
by reason of Code sections 4975(c)(1)(E)
and (F) if:
• the fiduciary is an Independent
Producer (as defined in Section X(d)),
• the transactions are described in
new Section III(g), and
• the conditions set forth in new
Sections VI, VII, and IX are satisfied.
These conditions are similar to the
conditions contained in PTE 2020–02
but are tailored to protect Retirement
Investors from the specific conflicts that
can arise for Independent Producers that
are compensated through commissions
when providing investment advice to
Retirement Investors regarding the
purchase of an annuity. The Department
also is proposing to add a new eligibility
provision in Section VIII for investment
advice transactions and amend the
current recordkeeping condition in
Section V(e) with a new recordkeeping
provision in Section IX that is similar to
the recordkeeping provision in PTE
2020–02.
Although the Department is proposing
a pathway for insurance companies to
oversee the conduct of Independent
Producers under the proposed
amendment to PTE 84–24 without
assuming fiduciary status, the
Department remains concerned that,
without fiduciary status, insurance
companies may not take their
supervisory obligations as seriously as
they should. Accordingly, the proposed
amendment does not provide relief for
the Insurer, and it strictly limits the
scope of relief to the Independent
Producer’s receipt of fully disclosed
commissions. An Insurer must rely on
PTE 2020–02 for relief if it is itself an
investment advice fiduciary because it
provides investment advice within the
meaning of ERISA section 3(21)(A)(ii)
and Code section 4975(e)(3)(B) and the
regulations issued thereunder. In
addition, an Insurer’s systematic failures
to comply with the proposed
exemption’s conditions could result in
Independent Producers’ inability to rely
on the amended exemption for relief
with respect to recommendations of that
Insurer’s products. In such a situation,
the Independent Producer would still be
able to receive compensation in
connection with fiduciary investment
advice related to the products of other
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complied with all conditions of
amended PTE 84–24.
Effective Date
The Department proposes that the
amendment will be effective on the date
that is 60 days after the publication of
a final amendment in the Federal
Register. Prior to the effective date, PTE
84–24 would remain available for all
insurance agents and insurance
companies that currently rely on the
exemption. Thus, the Department
confirms that the restrictions of ERISA
section 406(a)(1)(A), 406(a)(1)(D), and
406(b) and the sanctions imposed by
Code section 4975(a) and (b), by reason
of Code section 4975(c)(1)(A), (D), (E)
and (F), would not apply to the receipt
of compensation by an Insurer,
Investment Professional, or any Affiliate
and Related Entity in connection with
investment advice, if the
recommendation were made before the
effective date or pursuant to a
systematic purchase program
established before the effective date.
Also, no party would be held to the
amended conditions for a transaction
that occurred before the effective date of
the amended exemption.
Description of Changes to Existing PTE
84–24
Section II of existing PTE 84–24
provides exemptive relief for the
covered transactions described in
Section III(a) through (f). The
Department is proposing minor
language changes to capitalize defined
terms where they are used in the
existing sections of PTE 84–24, to
update the references to a ‘‘master or
prototype plan’’ to instead refer to a
‘‘Pre-approved Plan,’’ consistent with
changes in IRS Rev. Proc. 2017–41, and
to move the definitions from existing
Section VI to new proposed Section X.
As amended, Section III(a)-(f) would
read:
(a) The receipt, directly or indirectly,
by an insurance agent or broker or a
pension consultant of a Mutual Fund
Commission or an Insurance Sales
Commission from an insurance
company in connection with the
purchase, with plan assets, of an
insurance or annuity contract;
(b) The receipt of a Mutual Fund
Commission by a Principal Underwriter
for an investment company registered
under the Investment Company Act of
1940 (hereinafter referred to as an
investment company) in connection
with the purchase, with plan assets, of
securities issued by an investment
company;
(c) The effecting by an insurance
agent or broker, pension consultant or
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investment company Principal
Underwriter of a transaction for the
purchase, with plan assets, of an
insurance or annuity contract or
securities issued by an investment
company;
(d) The purchase, with plan assets, of
an insurance or annuity contract from
an insurance company;
(e) The purchase, with plan assets, of
an insurance or annuity contract from
an insurance company which is a
fiduciary or a service provider (or both)
with respect to the plan solely by reason
of the sponsorship of a Pre-approved
Plan; and
(f) The purchase, with plan assets, of
securities issued by an investment
company from, or the sale of such
securities to, an investment company or
an investment company Principal
Underwriter, when such investment
company, Principal Underwriter, or the
investment company investment adviser
is a fiduciary or a service provider (or
both) with respect to the plan solely by
reason of: (1) the sponsorship of a Preapproved Plan; or (2) the provision of
Nondiscretionary Trust Services to the
plan; or (3) both (1) and (2).
The Department also is proposing the
following amendments.
Excluding Investment Advice
The Department is proposing to
exclude investment advice fiduciaries
from relief for the transactions described
in Section III(a) through (f) of current
PTE 84–24. Investment advice
fiduciaries would be required to comply
with the conditions in Sections VI–VIII,
which are tailored specifically for
investment advice. The Department
notes that many types of fiduciaries are
already excluded from the transactions
in Sections III(a)–(d). The relief
provided for in these sections would
remain available for non-fiduciaries and
nondiscretionary trustees,8 even if they
8 Nondiscretionary trustees were added in 1984,
in response to a request from the Investment
Company Institute listing typical nondiscretionary
or trustee services. In an April 21, 1980 letter, ‘‘ICI
states nondiscretionary trustees and custodians:
(a) Open and maintain plan accounts and, in the
case of defined contribution plans, individual
participant accounts, pursuant to the employer’s
instructions;
(b) Receive contributions from the employer and
credit them to individual participant accounts in
accordance with the employer’s instructions;
(c) Invest contributions and other plan assets in
shares of a mutual fund or funds or other products
such as insurance or annuity contracts designated
by the employer, plan trustee, or participants, and
reinvest dividends and other distributions in such
investments;
(d) Redeem, transfer, or exchange mutual fund
shares or surrender insurance or annuity contracts
as instructed by the employer, plan trustee, or
participant;
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do not need all of the prohibited
transaction relief provided. The relief
for the transaction described in Section
III(e) would be available for any
insurance company that is a fiduciary
(other than an investment advice
fiduciary) or service provider (or both)
with respect to the plan solely by reason
of the sponsorship of a Pre-approved
Plan. The relief for the transaction
described in Section III(f) would be
available for any insurance company,
principal underwriter, or investment
company adviser that is a fiduciary
(other than an investment advice
fiduciary) or service provider (or both)
with respect to the plan solely by reason
of: (1) the sponsorship of a Pre-approved
Plan; or (2) the provision of
nondiscretionary trust services to the
plan; or (3) both (1) and (2).9
The Department requests comment on
whether the relief in proposed Section
II(a) for the covered transactions in
Section III(a)–(f) will be used by
fiduciaries and non-fiduciaries. The
Department further asks whether parties
are currently relying on Sections III(e)
and (f), involving Pre-approved Plans.
To the extent Sections III(a) through (f)
provide needed relief, the Department
also asks whether the conditions in
current Sections IV and V are
sufficiently protective for the specific
covered transactions.
(e) Provide or maintain ‘‘designation of
beneficiary’’ forms and make distributions from the
trust or custodial account to participants or
beneficiaries in accordance with the instructions of
the employer, plan trustee, participants, or
beneficiaries;
(f) Deliver to participants or their employer all
notices, prospectuses, and proxy statements, and
vote proxies in accordance with the participants’
instructions.
(g) Maintain records of all contributions,
investments, distributions, and other transactions
and report them to the employer and participants;
(h) Make necessary filings with the Internal
Revenue Service and other government agencies;
(i) Keep custody of the plan’s assets;
(j) Reply to and prepare correspondence, either
directly or through the mutual fund distributor or
adviser, regarding the investment account and the
operation and interpretation of a master or
prototype plan sponsored by the complex to which
the nondiscretionary trustee or custodian belongs.
In some situations, the trustee or custodian is
empowered to amend the master or prototype plan;
in others, this power resides in the sponsor of the
master or prototype plan. ICI further describes the
duties of the nondiscretionary trustees as
‘‘ministerial’’ and indicates that such trustees
possess no decisional authority with respect to a
plan’s funding medium or subsequent purchases or
sales.’’
9 The Department is not proposing to amend
Section III(f) to remove the phrase ‘‘investment
company adviser,’’ but notes that those providing
investment advice within the meaning of ERISA
section 3(21)(A)(ii) and Code section 4975(e)(3)(B)
would be excluded under Section II(a).
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Commissions
The Department is proposing to
replace the term ‘‘sales commission,’’
which is not defined in Section VI of
existing PTE 84–24, with the more
specific terms Mutual Fund
Commission and Insurance Sales
Commission. ‘‘Insurance Sales
Commission’’ would be defined as a
sales commission paid by the Insurance
Company or an Affiliate to the
Independent Producer 10 for the service
of recommending and/or effecting the
purchase or sale of an insurance or
annuity contract, including renewal fees
and trailing fees but excluding revenue
sharing payments, administrative fees or
marketing payments, payments from
parties other than the Insurance
Company or its Affiliates, or any other
similar fees. ‘‘Mutual Fund
Commission’’ would be defined as a
commission or sales load paid by either
the Plan or the investment company for
the service of effecting or executing the
purchase of investment company
securities, but does not include 12b–1
fees, revenue sharing payments,
administrative fees, management fees, or
marketing fees.
The Department is proposing to use
these terms to clarify the types of
compensation that can be received
under the exemption. The Department is
limiting the exemption to sales
commissions on insurance or annuity
contracts and investment company
securities, as opposed to any related or
alternative forms of compensation. This
is consistent with the Department’s
historical understanding and intent. The
exemption was originally granted in
1977, and the conditions were crafted
with simple commission payments in
mind. In the interim, the exemption was
not amended or formally interpreted to
broadly permit additional types of
compensation. The proposed definitions
would provide certainty regarding the
payments permitted by the exemption.11
10 The Insurance Sales Commission may be paid
directly to an intermediary such as an intermediary
marketing organization (IMO) or field market
organization) FMO, which then compensates the
individual Independent Producer who has provided
investment advice.
11 The Department has previously expressed this
view on the scope of relief under PTE 84–24 in
amending the exemption in 2016. ‘‘The Department
does not believe this exemption was properly
interpreted over the years to provide relief for
payments such as administrative services fees,
which are not akin to a commission. No
determination has been made that the conditions of
the exemption are protective in the context of such
payments. Without further information on these
fees, or suggested additional conditions addressed
at these types of payments, the Department declines
to take such an expansive approach to relief from
the prohibited transaction rules under the terms of
this exemption.’’ 81 FR 21147, 21166 (Apr. 8, 2016).
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The Department requests comment on
whether these defined terms
appropriately capture the type of
compensation that an Independent
Producer may receive.
Disclosures to IRA Owners
Section V(b)(1) of PTE 84–24
currently requires insurance agents,
brokers, or consultants to provide
disclosures to an ‘‘independent
fiduciary’’ before executing a
transaction involving the purchase of an
annuity with plan assets. That fiduciary
must acknowledge receipt of the
disclosure in writing and approve the
transaction. The Department is
proposing to clarify that for transactions
involving IRAs, these disclosures may
be provided to the IRA owner instead of
an unrelated fiduciary. The Department
requests comment on how frequently
this provision is currently used, how
frequently it would be used with the
additional proposed changes to PTE 84–
24 described below, how it is practically
implemented today, and how the
revised provision would be
operationalized.
Discretionary Managers
The Department proposes to clarify
the exclusion for discretionary managers
in current Section V(a)(3), which
provides that the insurance agent or
broker, pension consultant, insurance
company, or investment company
principal underwriter may not be a
fiduciary who is expressly authorized in
writing to manage, acquire or dispose of
the plan’s assets on a discretionary
basis. The Department is proposing to
amend this provision to exclude
fiduciaries with discretionary authority,
regardless of whether that authority has
been conferred orally or in writing. As
amended, proposed Section V(a)(3)
would provide that the insurance agent
or broker, pension consultant, insurance
company, or investment company
principal underwriter may not be a
fiduciary who is authorized (formally or
informally) to manage, acquire or
dispose of the plan’s assets on a
discretionary basis. The Department
intends for this change to be a mere
clarification, but requests comment as to
whether fiduciaries with oral authority
to manage plan assets have been relying
on PTE 84–24, because the current
condition requires the fiduciary to be
‘‘expressly authorized in writing.’’
Recordkeeping
The Department is proposing to add a
new Section IX to PTE 84–24 that would
require fiduciaries engaging in all
transactions covered by the exemption
to maintain records necessary for the
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following to determine that the
conditions of this exemption have been
met:
(1) any authorized employee of the
Department or the Internal Revenue
Service or another state or federal
regulator,
(2) any fiduciary of a Plan that
engaged in a transaction pursuant to this
exemption,
(3) any contributing employer and any
employee organization whose members
are covered by a Plan that engaged in a
transaction pursuant to this exemption,
or
(4) any participant or beneficiary of a
Plan or beneficial owner of an IRA
acting on behalf of the IRA that engaged
in a transaction pursuant to this
exemption.
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This requirement would replace the
more limited existing recordkeeping
requirement in current Section V(e).
This proposed amendment to the
recordkeeping requirement is consistent
with the recordkeeping provision the
Department has included in other
existing class exemptions (including the
proposed amendment to the
recordkeeping provisions of PTE 2020–
02). It is intended to protect the rights
of plan participants, beneficiaries, and
IRA owners by ensuring that they and
the Department are provided with
sufficient information to determine
whether the exemption conditions have
been satisfied.
Fiduciary Investment Advice
Exemption
The relief for fiduciary investment
advice in proposed Section II(b) for the
covered transactions described in
proposed Section III(g) is generally
similar to the relief provided in PTE
2020–02. However, while PTE 2020–02
is available for almost any fiduciary
investment advice provider, the
amended PTE 84–24 would be available
only for investment advice that is
provided to a Retirement Investor by an
Independent Producer who works with
multiple insurance companies to sell
non-securities annuities or other
insurance products not regulated by the
SEC. The Department requests comment
on whether to exclude these other
insurance products not regulated by the
SEC and limit Section III(g) to only nonsecurities annuities.
Independent Producers relying on
proposed Section III(g) may reasonably
rely on factual representations from the
Insurer, and the Insurer may reasonably
rely on factual representations from the
Independent Producer regarding
compliance with the exemption
conditions, as long as they do not know
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that such factual representations are
incomplete or inaccurate. For example,
the Independent Producer can rely on
the Insurer’s representations that it is
maintaining the required
documentation.
Proposed Section VI provides
conditions for transactions described in
proposed Section III(g) and would
require the advice to be provided by an
Independent Producer that is authorized
to sell annuities from two or more
unrelated Insurers. The term
‘‘Independent Producer’’ would be
defined in Section X as a person or
entity that is licensed under the laws of
a state to sell, solicit or negotiate
insurance contracts, including
annuities, and that sells products of
multiple unaffiliated insurance
companies to Retirement Investors but
is not an employee of an insurance
company (including a statutory
employee under Code section 3121).
The term ‘‘Retirement Investor’’ would
be defined in proposed Section X(o) to
have the same meaning as it has in PTE
2020–02, and the term ‘‘Insurer’’ would
be defined in proposed Section X(f)
similarly to the definition of the term
‘‘Financial Institution’’ in PTE 2020–02,
except it would be limited to insurance
companies.
Thus, proposed Section VI would
limit the transactions described in
proposed Section III(g) to the narrow
category of transactions in which an
independent, insurance-only agent
provides investment advice to a
Retirement Investor regarding a nonsecurities annuity or insurance contract.
For all other investment advice
transactions, including those by
Independent Producers that do not
satisfy the conditions of the amended
PTE 84–24 and those involving captive
or career insurance agents, the advice
provider would have to rely on PTE
2020–02 to receive exemptive relief for
investment advice transactions. The
Department has determined that when
non-independent agents recommend
insurance products, the insurance
company whose product is
recommended should be willing and
able to acknowledge its fiduciary status
under ERISA and the Code when
investment advice is provided to a
Retirement Investor for a fee, because it
has sufficient control over the agent and
the products the agent recommends.
Even though amended PTE 84–24
would not require Insurers to be
fiduciaries, they would be subject to
certain conditions when their products
are recommended. Consistent with the
NAIC Suitability in Annuity
Transactions Model Regulation (the
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NAIC Model Regulation),12 and as
discussed in the policies and
procedures section below, the proposed
exemption would require the Insurer
whose product is being sold to provide
meaningful supervision over the
Independent Producer making the
recommendation and sale to the
Retirement Investor. As stated in
proposed Section VI(b), the Insurer
would not become an investment advice
fiduciary under ERISA and/or the Code
merely by complying with the
applicable exemption conditions and
providing the required supervision.
However, the Department cautions that
Insurers selling insurance and annuity
products through Independent
Producers could become an investment
advice fiduciary under ERISA and/or
the Code through other actions they
take. If the Insurers are fiduciaries, they
could not rely on amended PTE 84–24
and would need to rely on a different
prohibited transaction exemption, such
as PTE 2020–02, for relief from ERISA
section 406(b) and Code section 4975.
To facilitate compliance with the
exemption, Independent Producers and
Insurers may rely on factual
representations from each other, as long
as they are reasonable in doing so. For
example, an Independent Producer may
generally rely on an Insurer’s written
report generated as part of its
retrospective review required by Section
VII(d), unless the Independent Producer
knows (or should know) that the report
is inaccurate or incomplete.
Exclusions
Section VI(c) proposes to exclude
certain specific investment advice
transactions. Under proposed Section
VI(c)(1), the relief would not be
available if the Plan is covered by Title
I of ERISA and the Independent
Producer, Insurer, or any Affiliate is the
employer of employees covered by the
Plan, or the Plan’s named fiduciary or
administrator. For example, an
Independent Producer that sponsors a
plan for its employees and provides the
investment advice to the plan can only
receive direct expenses and not
reasonable compensation for the advice.
However, there is an exception when
the advice provider is selected by an
independent fiduciary. Proposed
Section VI(c)(2) would exclude
transactions that involve the
Independent Producer acting in a
fiduciary capacity other than as an
investment advice fiduciary. Unlike in
PTE 2020–02, the Department is not
proposing a specific provision for
12 Available at https://content.naic.org/sites/
default/files/inline-files/MDL-275.pdf.
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pooled employer plans, because the
Department does not expect that pooled
employer plans would need to rely on
the limited relief in this exemption. The
Department requests comment on
whether pooled employer plans as
described in ERISA section 3(43) would
rely on the investment advice relief in
amended PTE 84–24.
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Impartial Conduct Standards of
Amended PTE 84–24
Section VII(a) of the proposed
amendment would condition relief for
investment advice transactions
described in proposed Section III(g) on
the Independent Producer that is
providing investment advice to
Retirement Investors complying with
the Impartial Conduct Standards that
are the same as those in PTE 2020–02—
i.e., acting in the Retirement Investor’s
Best Interest, receiving no more than
reasonable compensation, and making
no misleading statements—with some
modifications to reflect the specifics of
the independent agent channel. These
standards are discussed below.
Best Interest
The Best Interest standard would
require the Independent Producer to
provide investment advice that is in the
Retirement Investor’s Best Interest at the
time it is provided. Proposed Section
VII would rely on the same Best Interest
standard from PTE 2020–02. As defined
in proposed Section X(b), Best Interest
advice reflects the care, skill, prudence,
and diligence under the circumstances
then prevailing that a prudent person
acting in a like capacity and familiar
with such matters would use in the
conduct of an enterprise of a like
character and with like aims, based on
the investment objectives, risk
tolerance, financial circumstances, and
needs of the Retirement Investor, and
does not place the financial or other
interests of the Independent Producer,
Insurer or any Affiliate, Related Entity,
or other party ahead of the interests of
the Retirement Investor, or subordinate
the Retirement Investor’s interests to
those of the Independent Producer,
Insurer or any Affiliate, Related Entity,
or other party. For example, in choosing
between annuity products offered by
Insurers whose products the
Independent Producer is authorized to
sell, the Independent Producer may not
recommend a product that is worse for
the Retirement Investor but better or
more profitable for the Independent
Producer or Insurer.
Reasonable Compensation
Like PTE 2020–02, the proposed
exemption requires an Independent
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Producer’s compensation to not exceed
reasonable compensation within the
meaning of ERISA section 408(b)(2) and
Code section 4975(d)(2). To tailor this
condition to the specifics of insurance
sales, Section VII(a)(2) would require
that the Independent Producer can only
receive an Insurance Sales Commission
as compensation in connection with the
transaction.
No Misleading Statements
Proposed Section VII(a)(3) provides
the same prohibition on misleading
statements that is part of PTE 2020–02.
This provision requires an Independent
Producer’s statements to the Retirement
Investor about the recommended
transaction and other relevant matters to
not be materially misleading at the time
the statements are made. For purposes
of this condition, the term ‘‘materially
misleading’’ includes omitting
information that is needed to make the
statement not misleading in light of the
circumstances under which it was
made. To the extent the Independent
Producer provides materials, including
marketing materials that are prepared
and provided by the Insurer, this
condition also would require such
materials not to be materially
misleading to the Independent
Producer’s knowledge.
Disclosure
Section VII(b) of the proposed
amendment would require Independent
Producers to provide disclosures to
Retirement Investors before engaging in
a transaction pursuant to this
exemption. Similar to PTE 2020–02,
proposed Section VII(b)(1) would
require a fiduciary acknowledgement,
but unlike PTE 2020–02, only the
Independent Producer and not the
Insurer must acknowledge that it is a
fiduciary providing investment advice
to the Retirement Investor. Also similar
to the proposed amendment to PTE
2020–02, the Department is proposing
additional disclosures in PTE 84–24
Section VII(b) to help ensure that
Retirement Investors have sufficient
information to make an informed
decision about the costs of the
transaction and the significance and
severity of the Independent Producer’s
conflicts of interest. The Department
requests comment on these disclosures,
particularly regarding whether
additional or alternative information
would be helpful to Retirement
Investors receiving advice from
Independent Producers. The
Department is also interested in
receiving comments regarding whether
it should require Insurers or
Independent Producers to maintain a
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public website containing the pretransaction disclosure, a description of
the Insurer’s or Independent Producer’s
business model, associated Conflicts of
Interest (including arrangements that
provide third party payments), and a
schedule of typical fees. The
Department is interested in receiving
data and other information regarding the
benefits of such a web disclosure. The
Department is also interested in
receiving any data that commenters may
have that can inform an estimate of the
extent to which Retirement Investors,
investment consultants, and third party
intermediaries would visit and use a
web page that includes such
disclosures.
Pre-Transaction Disclosure
Similar to PTE 2020–02, proposed
Section VII(b)(1) would require a
fiduciary acknowledgement, but unlike
PTE 2020–02, only the Independent
Producer and not the Insurer must
acknowledge that it is a fiduciary
providing investment advice to the
Retirement Investor.13 Section VII(b)(2)
would require the Independent
Producer to provide the Retirement
Investor with a written statement of the
Best Interest standard of care that the
Independent Producer owes to the
Retirement Investor. Under Section
VII(b)(3), the Independent Producer
must provide a written description of
the services to be provided and the
Independent Producer’s material
Conflicts of Interest that is accurate and
not misleading in any material respects.
The description will include the
products the Independent Producer is
licensed and authorized to sell and
inform the Retirement Investor in
writing of any limits on the range of
insurance products recommended. The
Independent Producer must identify the
specific Insurers and specific
investment products available for
recommendation.
Under proposed Section VII(b)(4), the
Independent Producer would also be
required to provide a written statement
of the amount of the Insurance Sales
Commission it will be paid in
connection with the purchase by the
Retirement Investor of the
recommended annuity. The statement
must disclose the amount of the
expected Insurance Sales Commission,
in both dollars and as a percentage of
gross annual premium payments. If
applicable, the statement must also
disclose the amount the Independent
13 The Department cautions that an Insurer cannot
insulate itself from fiduciary status merely by not
making this acknowledgment. As noted above, an
Insurer may become a fiduciary based on its
actions.
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Producer will be paid for the first year
and each succeeding year.14
Under proposed Section VII(b)(5), the
Independent Producer would also be
required to provide a written statement
informing the Retirement Investor of the
right to obtain specific information
regarding costs, fees, and compensation,
and how to obtain it, free of charge. The
statement must be written in plain
English, taking into consideration the
Retirement Investor’s level of financial
experience, and it must be accurate and
not misleading. The cost, fee, and
compensation information may be
described in dollar amounts,
percentages, formulas, or other means
reasonably designed to be materially
accurate in scope, magnitude, and
nature of the compensation. The
information must be detailed enough for
the Retirement Investor to make an
informed judgment about the
transaction costs and the significance
and severity of the Conflicts of Interest.
For example, the Retirement Investor
may ask how the Independent Producer
would be compensated for
recommending and selling other
products they are authorized to sell and
whether the Independent Producer is
likely to receive more as a result of its
recommendation than it would have
received if it had recommended other
annuities.
The proposed requirement to disclose
the amount of expected Insurance Sales
Commission, expressed both in dollars
and as a percentage of gross annual
premium payments, if applicable, for
the first year and for each of the
succeeding years is consistent with the
existing disclosure requirements in PTE
84–24 Section V(b)(1). The proposed
requirement to disclose the range of
compensation is intended to ensure that
the Retirement Investor understands the
magnitude of the Independent
Producer’s material Conflicts of Interest.
Without a single Insurer overseeing each
recommendation, Independent
Producers must carefully analyze and
disclose the various incentives available
14 Some insurers offer fee-based annuities which
are generally designed for sale in fee-based
distribution models. These annuities do not pay a
sales commission and typically have no withdrawal
charges or lower charges than under commissioned
products. Compensation for sales of fee-based
annuities is usually based on a percentage of the
annuity’s account value or some other
methodology. Fee-based annuities are eligible for
the relief provided by the proposed amendment if
all the conditions of the exemption are met. If an
Independent Producer recommends a fee-based
annuity, the written statement must disclose the
specific method for determining the amount of
compensation for the first year and succeeding
years, expressed both in dollars and as percentage
of the account value (or other relevant value) to the
extent possible.
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from different Insurers that could affect
the recommendation. For this reason,
proposed Section VII(b)(4) requires the
Independent Producer to make specific
disclosures before the sale of a
recommended annuity. The
Independent Producer must consider
and document its conclusions that the
recommended annuity is in the
Retirement Investor’s Best Interest and
provide that documentation to the
Retirement Investor and the Insurer.
To assist Independent Producers in
complying with this proposed
exemption’s disclosure conditions, the
Department is providing the following
proposed model language that will
satisfy proposed Section VII(b)(1), (2),
and (5).
When we make investment
recommendations to you regarding your
retirement plan account or individual
retirement account, we are fiduciaries within
the meaning of Title I of the Employee
Retirement Income Security Act and/or the
Internal Revenue Code, as applicable, which
are laws governing retirement accounts. The
way we make money creates some conflicts
with your interests, so we operate under a
special rule that requires us to act in your
best interest and not put our interest ahead
of yours. Under this special rule’s provisions,
we must:
• Meet a professional standard of care
when making investment recommendations
(give prudent advice);
• Never put our financial interests ahead
of yours when making recommendations
(give loyal advice);
• Avoid misleading statements about
conflicts of interest, fees, and investments;
• Follow policies and procedures designed
to ensure that we give advice that is in your
best interest;
• Charge no more than is reasonable for
our services; and
• Give you basic information about
conflicts of interest.
You can ask us for more information
explaining costs, fees, and compensation, so
that you may make an informed judgment
about the costs of the transaction and about
the significance and severity of the Conflicts
of Interest. We will provide you with this
information at no cost to you.
Please note that the Department is not
proposing to include model language for
Section VII(b)(3) or (4) that would
describe services to be provided, the
conflicts of interest, or the commissions
paid because those will vary for each
Independent Producer.
Best Interest Documentation and
Rollover Disclosure
Under proposed Section II(b)(6),
before the sale of a recommended nonsecurity annuity, the Independent
Producer would consider and document
its conclusions as to whether the
recommended non-security annuity is
in the Best Interest of the Retirement
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Investor. The Independent Producer
must provide this documentation to
both the Retirement Investor and to the
Insurer whose products are being sold.
The Department requests comment on
whether this proposed condition should
be expanded to other insurance
products not regulated by the SEC.
Proposed Section VII(b)(7) would
further require Independent Producers
to provide a rollover disclosure that is
similar to the disclosure required in the
proposed amendment to PTE 2020–02
Section II(b)(5). Before engaging in a
rollover or making a recommendation to
a Plan participant as to the post-rollover
investment of assets currently held in a
Plan, the Independent Producer must
consider and document its conclusions
as to whether a rollover is in the
Retirement Investor’s Best Interest and
provide that documentation to the
Retirement Investor. Relevant factors to
consider must include but are not
limited to:
• the alternatives to a rollover,
including leaving the money in the
Plan, if applicable,
• the comparative fees and expenses,
• whether an employer or other party
pays for some or all administrative
expenses, and
• the different levels of fiduciary
protection, services, and investments
available.
To assist the Insurer in satisfying its
supervisory obligations, the
Independent Producer must also
provide the documentation to the
Insurer.
Good Faith
Proposed Section VII(b)(6) provides
that Independent Producers and the
Insurer may rely in good faith on
information and assurances from other
entities that are not Affiliates as long as
they do not know or have reason to
know that such information is
incomplete or inaccurate. Proposed
Section II(b)(7) confirms that the
Independent Producer would not be
required to disclose information that
otherwise is prohibited by law.
Policies and Procedures
The exemption depends on oversight
by a responsible Insurer to ensure that
appropriate policies and procedures are
in place. While the exemption would
not require the Insurer to act in a
fiduciary capacity or to acknowledge
fiduciary status, the Insurer would be
expected to adopt and implement
protective policies and procedures, and
to carefully police recommendations of
its own investment products. These
requirements are consistent with
supervisory requirements for insurance
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companies under state insurance law,
and do not require the Insurers to police
Independent Producers’
recommendations of competitors’
products.
Proposed Section VII(c) would require
Insurers to establish, maintain, and
enforce written policies and procedures.
These conditions are similar to those in
PTE 2020–02 Section II(c), including
that compliance with these obligations
are the Insurer’s responsibility and not
the Independent Producer’s. Under
proposed Section VII(c)(1), the Insurer
must establish, maintain, and enforce
written policies and procedures for the
Insurer to review each of the
Independent Producer’s
recommendations before an annuity is
issued to a Retirement Investor. The
policies and procedures must be
prudently designed to ensure
compliance with the Impartial Conduct
Standards and other conditions of this
exemption. This requirement is similar
to that in PTE 2020–02 and is consistent
with the language in NAIC Model
Regulation Section 6.C.(2)(d), which
provides that ‘‘[t]he insurer shall
establish and maintain procedures for
the review of each recommendation
prior to issuance of an annuity that are
designed to ensure there is a reasonable
basis to determine that the
recommended annuity would effectively
address the particular consumer’s
financial situation, insurance needs and
financial objectives.’’ Under the
proposal, the Insurer’s prudent review
of the Independent Producer’s specific
recommendations must be made
without regard to the Insurer’s own
interests or those of its affiliates and
related entities.
The Department notes that the NAIC
Model Regulation contemplates that
insurance companies will maintain a
system of oversight with respect to
insurance agents. Insurers could
implement procedures to review
annuity sales to Retirement Investors to
ensure that they are made in compliance
with the Impartial Conduct Standards
similar to how they currently are
required to review annuity sales to
ensure compliance with the state-law
suitability requirements.15 Section I of
15 NAIC Model Regulation Section 6.C.(2)(d)
provides that ‘‘[t]he insurer shall establish and
maintain procedures for the review of each
recommendation prior to issuance of an annuity
that are designed to ensure that there is a reasonable
basis to determine that the recommended annuity
would effectively address the particular consumer’s
financial situation, insurance needs and financial
objectives. Such review procedures may apply a
screening system for the purpose of identifying
selected transactions for additional review and may
be accomplished electronically or through other
means including, but not limited to, physical
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the NAIC Model Regulation provides
that the purpose of the regulation is to
‘‘require producers, as defined in this
regulation, to act in the best interest of
the consumer when making a
recommendation of an annuity and to
require insurers to establish and
maintain a system to supervise
recommendations so that the insurance
needs and financial objectives of
consumers at the time of the transaction
are effectively addressed.’’ 16
Accordingly, the Department believes
that a system of oversight by Insurers
over Independent Producers is
consistent with the obligations imposed
by NAIC’s Model Regulation, and is
achievable under this proposed
amendment to PTE 84–24.
In terms of the specific oversight
requirements, the Department confirms
that under the proposed amendment, an
Insurer would only be required to
supervise an Independent Producer’s
recommendations of the annuities it
offers to Retirement Investors. The
Insurer would not be required to review
annuities offered by another institution.
The Department also clarifies that the
exemption would not require the
Insurer to consider or compare the
specific annuities that an Independent
Producer sells or the compensation
relating to those annuities, unless they
are annuities the Insurer offers. This
approach is also consistent with the
approach of NAIC Model Regulation
Section 6.C.(4).17
Under proposed Section VII(c)(2), the
Insurer’s policies and procedures must
mitigate Conflicts of Interest to the
extent that a reasonable person
reviewing the policies and procedures
and the Insurer’s incentive practices as
a whole would conclude that they do
review. Such an electronic or other system may be
designed to require additional review only of those
transactions identified for additional review by the
selection criteria’’). Section 6.C.(2)(e) provides that
‘‘[t]he insurer shall establish and maintain
reasonable procedures to detect recommendations
that are not in compliance with subsections A, B,
D and E. This may include, but is not limited to,
confirmation of the consumer’s consumer profile
information, systematic customer surveys, producer
and consumer interviews, confirmation letters,
producer statements or attestations and programs of
internal monitoring. Nothing in this subparagraph
prevents an insurer from complying with this
subparagraph by applying sampling procedures, or
by confirming the consumer profile information or
other required information under this section after
issuance or delivery of the annuity.’’
16 Id., Section 1.A.
17 NAIC Model Regulation Section 6.C.(4)
provides that an insurer is not required to include
in its system of supervision: (a) A producer’s
recommendations to consumers of products other
than the annuities offered by the insurer; or (b)
Consideration of or comparison to options available
to the producer or compensation relating to those
options other than annuities or other products
offered by the insurer.
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not create an incentive for the
Independent Producer to place its
interests, or those of the Insurer, or any
Affiliate, ahead of the Retirement
Investor’s interests. The Insurer’s
procedures must identify and eliminate
quotas, appraisals, bonuses, contests,
special awards, differential
compensation, riders and or other
similar features that are intended, or
that a reasonable person would
conclude are likely, to incentivize
Independent Producers to provide
recommendations that do not meet the
Impartial Conduct Standards. This is the
same condition that applies to Financial
Institutions under Section II(c)(2) of PTE
2020–02. It is also consistent with,
although more protective than, the
narrower NAIC Model Regulation
section 6.C.(2)(h), which prohibits an
insurer from establishing sales contests,
sales quotas, bonuses, and non-cash
compensation that are based on sales of
specific annuities within a limited
period of time.
Under proposed Section VII(c)(2), an
Insurer could not offer incentive
vacations, trips, or even educational
conferences, if qualification for the
vacation, trip or conference is based on
sales volume or satisfaction of sales
quotas. The Best Interest standard
discussed above and defined in
proposed Section X(b) clearly prohibits
these types of incentives on the grounds
they create undue conflicts of interest.
Moreover, the Department believes that
educational opportunities should be
offered equally to all agents and not
connected to sales volume, because
training is a necessary component of
providing Best Interest advice. This
emphasis on Independent Producer
training is consistent with NAIC Model
Regulation section 6.C.(2)(c), which
requires insurers to provide its
producers with product-specific training
and training materials that explain all
material features of its annuity products.
Under proposed Section VII(c)(3), the
Insurer’s policies and procedures must
include a prudent process for
determining whether to authorize an
Independent Producer to sell the
Insurer’s annuity contracts to
Retirement Investors. It must also
include a prudent process for taking
action to protect Retirement Investors
from Independent Producers who have
failed or are likely to fail to adhere to
the Impartial Conduct Standards, or
who lack the necessary education,
training, or skill. This is consistent with,
but more protective than, NAIC Model
Regulation section 7.B.(11), which
requires an insurer to verify the
producer has completed the annuity
training course required under NAIC
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Model Regulation section 7 before
allowing the producer to sell an annuity
product for that insurer.
As part of a prudent evaluation of an
Independent Producer’s background, the
Insurer must carefully review customer
complaints, disciplinary history, and
regulatory actions concerning the
Independent Producer, as well as the
Independent Producer’s training,
education, and conduct with respect to
the Insurer’s own products. The Insurer
must document the basis for its initial
determination that it can rely on the
Independent Producer to adhere to the
Impartial Conduct Standards, and it
must review that determination at least
annually as part of the retrospective
review. The Department notes that
Insurers may rely in part on an
automated system to apply general
standards and review formal discipline
records, as long as careful, individual
review is applied when the general
review raises concerns. However, the
Department expects that an Insurer
would not work with an Independent
Producer that either has been barred by
any regulator from selling insurance or
annuity contracts, or that is ineligible to
rely on either PTE 2020–02 or the
amended PTE 84–24 under proposed
Section VIII. The Department requests
comments on these requirements and is
specifically interested in the systems
Insurers currently use to determine
whether Independent Producers are
compliant with state insurance
obligations. The Department is also
interested in comments about how
Insurers have operationalized the
supervisory requirements in the NAIC
Model Regulation.
Under proposed Section VII(c)(4),
Insurers must provide their complete
policies and procedures to the
Department within 10 days upon
request. The Department believes that
ensuring its access to policies and
procedures will facilitate the quicker
resolution of disputes and allow the
Department, if it desires, to survey the
policies and procedures for exemption
compliance and effectiveness.
Retrospective Review
Proposed Section VII(d) would
require Insurers to conduct a
retrospective review, at least annually.
The retrospective review must be
reasonably designed to detect and
prevent violations of, and achieve
compliance with the Impartial Conduct
Standards, the terms of this exemption,
and the policies and procedures
governing compliance with the
exemption, including the effectiveness
of the supervision system, any
noncompliance discovered in
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connection with the review, and
corrective actions taken or
recommended, if any.
The retrospective review requirement
is similar to that in Section II(d) of PTE
2020–02. However, unlike PTE 2020–02,
Insurers under proposed Section VII(d)
of PTE 84–24 must include in their
review a prudent determination whether
to continue to permit individual
Independent Producers to sell the
Insurer’s annuity contracts to
Retirement Investors. This review does
not need to be as extensive as the initial
decision to contract with an
Independent Producer. An Insurer may
consider any change in discipline
records that are found in widelyavailable databases and rollover
documentations that have been
provided under Section VII(c)(5).
Additionally, the Insurer must update
the policies and procedures as business,
regulatory, and legislative changes and
events dictate, and to ensure they
remain prudently designed, effective,
and compliant with Section VII(c).
Consistent with both PTE 2020–02
and the NAIC Model Regulation Section
6.C.(2)(i),18 proposed Section VII(d)(2)
would require the Insurer to provide a
Senior Executive Officer with an annual
written report which details the review.
Under Section VII(d)(3), the Department
would further require the Insurer to
provide the Independent Producer with
the underlying methodology and results
of the retrospective review. The
Department understands that Insurers
will conduct reviews for many different
Independent Producers and confirms
that Independent Producers only have
the right to information about their own
sales. There is no obligation to inform
any Independent Producers of an
unrelated Independent Producer’s
failure.
Proposed Section VII(d)(4) would
require a Senior Executive Officer of the
Insurer to annually certify that:
• The officer has reviewed the
retrospective review report,
• The Insurer has filed (or will file
timely, including extensions) Form
5330, reporting any non-exempt
prohibited transaction discovered by the
Insurer in connection with investment
advice covered under Code section
4975(e)(3)(B),
• The Insurer has advised the
Independent Producer of the violation
18 NAIC Model Reg Section 6.(C)(i) provides that:
‘‘The insurer shall annually provide a written report
to senior management, including to the senior
manager responsible for audit functions, which
details a review, with appropriate testing,
reasonably designed to determine the effectiveness
of the supervision system, the exceptions found,
and corrective action taken or recommended, if
any.’’
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and any resulting excise taxes owed
under Code section 4975, and
• The Insurer has notified the
Department of Labor of the violation via
email to PTE_84-24@dol.gov.
• The Insurer has established policies
and procedures prudently designed to
ensure that Independent Producers
achieve compliance with the conditions
of this exemption, and has updated and
modified the policies and procedures as
appropriate after consideration of the
findings in the retrospective review
report; and
• The Insurer has in place a prudent
process to modify such policies and
procedures as business, regulatory, and
legislative changes and events dictate,
as well as a prudent process to test the
effectiveness of such policies and
procedures on a periodic basis, to
ensure its continuing compliance with
the exemption’s conditions.
Under proposed Section VII(d)(5), the
review, report, and certification must be
completed no later than 6 months
following the end of the period covered
by the review, and proposed Section
VII(d)(6) would require the Insurer to
retain the report, certification, and
supporting data for a period of six years
and make the report, certification, and
supporting data available to the
Department, within 10 business days of
request, to the extent permitted by law.
Self-Correction
While the Insurer is responsible for
the retrospective review, proposed
Section VII(e) would allow the
Independent Producer to make the
corrections needed to avoid a nonexempt prohibited transaction in certain
circumstances. Self-correction would be
allowed in cases when either (1) the
Independent Producer has refunded any
charge to the Retirement Investor or (2)
the Insurer has rescinded a mis-sold
annuity, canceled the contract, and
waived the surrender charges. This is
somewhat different from the selfcorrection provision in PTE 2020–02,
which is focused on investment losses.
With a fixed annuity, the consumer is
guaranteed not to lose any account
value but can incur a charge (and hence
a loss) if the contract is surrendered
during the surrender charge period. The
usual remedy for a mis-sold annuity is
rescission, which requires the insurer to
cancel the contract and waive surrender
charges. Under the proposed
amendment, the Independent Producer
must notify the Department of the
violation and the refund or rescission
via email to PTE_84-24@dol.gov within
30 days of correction. The correction
must occur no later than 90 days after
the Independent Producer learned, or
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reasonably should have learned, of the
violation. Lastly, the Independent
Producer must notify the person(s) at
the Insurer responsible for conducting
the retrospective review during the
applicable review cycle and the
violation and correction must
specifically be set forth in the written
retrospective review report.
Eligibility
Section VIII of the proposed
amendment identifies circumstances
under which an Independent Producer
or Insurer would become ineligible to
rely on the exemption for 10 years, and
also circumstances when an entity
would not be permitted to serve as an
Insurer under this exemption for 10
years. These eligibility provisions are
similar to the provisions of Section III
of PTE 2020–02, and are intended to
promote compliance. Section VIII(a)
describes how Independent Producers
can become ineligible. The proposed
amendment sets forth the specific
crimes (including foreign crimes) that
could cause ineligibility in Section
III(a)(1). Independent Producers would
also become ineligible if they are issued
a written ineligibility notice from the
Department stating that they: (A)
engaged in a systematic pattern or
practice of violating the conditions of
this exemption; (B) intentionally
violated, or knowingly participated in
violations of, the conditions of this
exemption; (C) engaged in a systematic
pattern or practice of failing to correct
prohibited transactions, report those
transactions to the IRS on Form 5330,
and pay excise taxes involving
investment advice; or (D) provided
materially misleading information to the
Department in connection with the its
conduct under the exemption.
Independent Producers would become
ineligible six months after the
conviction date, the date of the
Department’s written determination
regarding a foreign conviction, or the
date of the Department’s written
ineligibility notice, as applicable.
During the six-month period, the
Independent Producers are still
fiduciaries, subject to all of the fiduciary
requirements and prohibited transaction
rules. Thus, Independent Producers
must continue to comply with the
exemption during those six months, and
any transactions that do not meet the
terms of the exemption will be subject
to excise tax and ERISA penalties. The
ineligibility remains in effect until the
earliest of: a subsequent judgement
reversing a person’s conviction, 10 years
after the person became ineligible or is
released from imprisonment, if later, or
the Department grants an individual
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exemption permitting reliance on this
exemption, notwithstanding the
conviction.
Section VIII(b) delineates similarly
eligibility provisions for Insurers. An
entity will be ineligible to serve as an
Insurer with respect to the exemption if
it has a conviction for a crime listed
under Section VIII(b)(1) or has been
determined to be ineligible under
Section VIII(b)(2). Furthermore, because
Insurers that fail to satisfy the
conditions of this exemption would not
necessarily engage in a non-exempt
prohibited transaction, their eligibility
to rely on this exemption would not be
linked to engaging in a systematic
pattern or practice of failing to correct
prohibited transactions, report those
transactions to the IRS on Form 5330,
and pay excise taxes imposed by Code
section 4975 in connection with nonexempt prohibited transactions
involving investment advice under Code
section 4975(e)(3)(B). The Department
notes that, as a fiduciary, before
recommending an insurance product the
Independent Producer is responsible for
ensuring that the relevant insurance
company is an Insurer permitted to sell
its products through Independent
Producers and Section VIII. The
Independent Producer may reasonably
rely on an Insurer’s representations to it
regarding the Insurer’s continued
eligibility under the exemption.
Insurers would become ineligible six
months after the conviction date, the
date of the Department’s written
determination regarding a foreign
conviction, or the date of the
Department’s written ineligibility
notice, as applicable. Unlike
Independent Producers, Insurers might
not be fiduciaries; therefore, they might
not be subject to all fiduciary
requirements during the six-month
period. As fiduciaries, the Independent
Producers should be aware of whether
they are selling products of any Insurers
that will become ineligible within six
months. The ineligibility remains in
effect until the earliest of: a subsequent
judgement reversing a person’s
conviction, 10 years after the person
became ineligible or is released from
imprisonment, if later, or the
Department grants an individual
exemption permitting reliance on this
exemption, notwithstanding the
conviction.
Proposed Section VIII(c) would
provide Independent Producers and
Insurers with the opportunity to be
heard. Like PTE 2020–02, there would
be no separate evidentiary hearing
following conviction by a U.S. federal or
state court of competent jurisdiction,
but Section XVIII(c)(1) would allow
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76013
Insurers and Independent Producers to
submit a petition informing the
Department of the conviction and
seeking a determination that continued
reliance on the exemption would not be
contrary to the purposes of the
exemption.
Proposed Section VIII(c)(2) would
allow Independent Producers and
Insurers to request an evidentiary
hearing before becoming ineligible and
losing access to the exemption. Before
issuing a written ineligibility notice, the
Department will issue a written warning
to the Independent Producer or Insurer,
as applicable, identifying specific
conduct implicating proposed Section
VIII(a)(2) or (b)(2), as applicable. The
Insurer or Independent Producer then
has a six-month opportunity to correct
their conduct. At the end of the sixmonth period, if the Department
determines that the Independent
Producer or Insurer has not taken
appropriate action to prevent recurrence
of the disqualifying conduct, it will give
the Independent Producer or Insurer the
opportunity to be heard in person
(including by phone or
videoconference), in writing, or a
combination thereof, before the
Department issues the written
ineligibility notice. The opportunity to
be heard will be limited to one
conference unless the Department
determines in its sole discretion to
allow additional conferences.
Following a hearing for either foreign
convictions or other misconduct, the
Department’s determination will be
based solely on its discretion. The
Department will consider the following
when making its determination:
• the gravity of the offense;
• the degree to which the underlying
conduct concerned individual
misconduct, or, alternately, corporate
managers or policy;
• recency of the conduct at issue;
• any remedial measures the
Independent Producer or Insurer has
taken upon learning of the underlying
conduct; and
• other factors the Department
determines in its discretion are
reasonable in light of the nature and
purposes of the exemption.
If the Department issues a written
ineligibility notice, the notice will
articulate the basis for the Department’s
determination that the Independent
Producer or Insurer engaged in conduct
described in Section VIII(a)(2).
If an Insurer or Independent Producer
is ineligible to rely on amended PTE 84–
24, proposed Section VIII(d) provides
that the Insurer or Independent
Producer may rely on a statutory or
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separate administrative prohibited
transaction exemption if one is available
or seek an individual prohibited
transaction exemption from the
Department. The Department notes that
PTE 2020–02 will generally be available
for insurance companies that are
ineligible to serve as Insurers under PTE
84–24. However, the Department may,
as part of its eligibility determination
process, determine that an entity is not
eligible for either PTE 2020–02 or PTE
84–24. The written warning,
opportunity to be heard, and written
ineligibility notice would each clearly
state the exemption or exemptions for
which ineligibility was being
considered.
If an Insurer cannot sell its products
under PTE 84–24, the Department
would consider an application for an
individual exemption for that Insurer,
and any resulting exemption would
likely require the Insurer to be a
fiduciary and acknowledge fiduciary
status. If an applicant seeks retroactive
relief in connection with an exemption
application, the Department will
consider the application in accordance
with its retroactive exemption policy.19
The Department may require additional
prospective compliance conditions as a
condition of retroactive relief. The
Department requests comments on the
process described above, including
whether it would be helpful to provide
greater details about the evidentiary
hearing and the written ineligibility
notice, and, if so, what details are
necessary.
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Recordkeeping
As discussed above, the Department is
proposing to add a new Section IX to
PTE 84–24, which would require the
party engaging in a transaction covered
by the exemption to maintain records
necessary to enable certain persons
(described in proposed Section IX(a)(2))
to determine whether the conditions of
this exemption have been met. This
provision would apply to all of the
conditions of PTE 84–24, replacing the
more limited existing recordkeeping
requirement in current Section V(e).
This proposed recordkeeping
requirement is consistent with PTE
2020–02 and is intended to protect the
rights of plan participants and
beneficiaries and IRA owners by
ensuring that they and the Department
have sufficient information to confirm
that that exemption conditions have
been satisfied.
19 Set
forth in 29 CFR 2570.35(d).
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Executive Order 12866 and 13563
Statement
Executive Orders 12866 and 13563
direct agencies to assess all costs and
benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits
(including potential economic,
environmental, public health and safety
effects; distributive impacts; and
equity). Executive Order 13563
emphasizes the importance of
quantifying costs and benefits, reducing
costs, harmonizing rules, and promoting
flexibility.
Under Executive Order 12866, as
amended by Executive Order 14094,
‘‘significant’’ regulatory actions are
subject to review by the Office of
Management and Budget (OMB).
Section 3(f) of the Executive Order
defines a ‘‘significant regulatory action’’
as an action that is likely to result in a
rule (1) having an annual effect on the
economy of $200 million or more, or
adversely and materially affecting a
sector of the economy, productivity,
competition, jobs, the environment,
public health or safety, or state, local, or
tribal governments or communities; (2)
creating a serious inconsistency or
otherwise interfering with an action
taken or planned by another agency; (3)
materially altering the budgetary
impacts of entitlement grants, user fees,
or loan programs or the rights and
obligations of recipients thereof; or (4)
raising legal or policy issues for which
centralized review would meaningfully
further the President’s priorities or the
principles set forth in the Executive
Order. It has been determined that this
proposal is a ‘‘significant regulatory
action’’ within the scope of section
3(f)(1) of the Executive Order.
Therefore, the Department has
provided an assessment of the
proposal’s potential costs, benefits, and
transfers, and OMB has reviewed this
proposed amendment pursuant to the
Executive Order.
Paperwork Reduction Act
As part of its continuing effort to
reduce paperwork and respondent
burden, the Department conducts a
preclearance consultation program to
allow the general public and Federal
agencies to comment on proposed and
continuing collections of information in
accordance with the Paperwork
Reduction Act of 1995 (PRA). This helps
ensure that the public understands the
Department’s collection instructions,
respondents can provide the requested
data in the desired format, reporting
burden (time and financial resources) is
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minimized, collection instruments are
clearly understood, and the Department
can properly assess the impact of
collection requirements on respondents.
The Department is soliciting
comments regarding the information
collection request (ICR) included in the
proposed amendments to the ICR. To
obtain a copy of the ICR, contact the
PRA addressee below or go to
RegInfo.gov. The Department has
submitted a copy of the rule to the OMB
in accordance with 44 U.S.C. 3507(d) for
review of its information collections.
The Department and OMB are
particularly interested in comments
that:
• Evaluate whether the collection of
information is necessary for the
functions of the agency, including
whether the information will have
practical utility;
• Evaluate the accuracy of the
agency’s estimate of the burden of the
collection of information, including the
validity of the methodology and
assumptions used;
• Enhance the quality, utility, and
clarity of the information to be
collected; and
• Minimize the burden of the
collection of information on those who
are to respond, including through the
use of appropriate automated,
electronic, mechanical, or other
technological collection techniques or
other forms of information technology
(e.g., permitting electronically delivered
responses).
Commenters may send their views on
the Departments’ PRA analysis in the
same way they send comments in
response to the proposed rule as a
whole (for example, through the
www.regulations.gov website), including
as part of a comment responding to the
broader proposed rule. Comments are
due by January 2, 2024 to ensure their
consideration.
PRA Addressee: Address requests for
copies of the ICR to James Butikofer,
Office of Research and Analysis, U.S.
Department of Labor, Employee Benefits
Security Administration, 200
Constitution Avenue NW, Room N–
5718, Washington, DC 20210, or
ebsa.opr@dol.gov. ICRs also are
available at https://www.RegInfo.gov
(https://www.reginfo.gov/public/do/
PRAMain).
As discussed in detail above, PTE 84–
24, as amended, would exclude
investment advice fiduciaries from the
existing relief provided in Section II,
which would be redesignated as Section
II(a) and add new Sections VI–VIII,
which would provide relief for
investment advice limited to the narrow
category of transactions in which an
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independent, insurance-only agent, or
Independent Producer, provides
investment advice to a Retirement
Investor regarding an annuity or
insurance contract. Additionally, as
amended, the exemption requires the
Independent Producers engaging in
these transactions to adhere to certain
Impartial Conduct Standards, including
acting in the best interest of the plans
and IRAs when providing advice.
Financial institutions and investment
professionals that engage in all other
investment advice transactions,
including those involving captive or
career insurance agents would rely on
PTE 2020–02 to receive exemptive relief
for investment advice transactions. The
amendment would revise the
recordkeeping requirements for all
entities relying on PTE 84–24.
Additionally, for Independent
Producers, the exemption would require
entities to make certain new disclosures,
conduct an annual retrospective review,
and comply with policy and procedure
requirements.
These requirements are ICRs subject
to the PRA. Readers should note that the
burden discussed below conforms to the
requirements of the PRA and is not the
incremental burden of the changes.20
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1.1 Preliminary Assumptions
In the analysis discussed below, a
combination of personnel would
perform the tasks associated with the
ICRs at an hourly wage rate of $158.94
for an Independent Producer, $63.45 for
clerical personnel, and $159.34 for a
legal professional, and $128.11 for a
senior executive.21
The Department does not have
information on how many Retirement
Investors, including plan beneficiaries
and participants and IRA owners,
receive disclosures electronically from
investment advice fiduciaries. For the
purposes of this analysis, the
Department assumes that the percent of
Retirement Investors receiving
disclosures electronically would be
similar to the percent of plan
participants receiving disclosures
electronically under the Department’s
2020 electronic disclosure rules.22
20 For a more detailed discussion of the marginal
costs associated with the proposed amendments to
PTE 84–24, refer to the Notice of Proposed
Rulemaking published elsewhere in today’s edition
of the Federal Register.
21 Internal Department calculation based on 2023
labor cost data. For a description of the
Department’s methodology for calculating wage
rates, see https://www.dol.gov/sites/dolgov/files/
EBSA/laws-and-regulations/rules-and-regulations/
technical-appendices/labor-cost-inputs-used-inebsa-opr-ria-and-pra-burden-calculations-june2019.pdf.
22 67 FR 17263 (Apr. 9, 2002).
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Accordingly, the Department estimates
that 94.2 percent of the disclosures sent
to Retirement Investors would be sent
electronically, and the remaining 5.8
percent would be sent by mail.23 The
Department requests comment on these
assumptions.
The Department assumes any
documents sent by mail would be sent
by First Class Mail, incurring a postage
cost of $0.66 for each piece of mail.24
Additionally, the Department assumes
that documents sent by mail would
incur a material cost of $0.05 for each
page.
1.2 Costs Associated With Satisfying
Conditions for Transactions Described
in Section III(a)–(f)
Insurance agents and brokers, pension
consultants, insurance companies, and
investment company principal
underwriters are expected to continue to
take advantage of the exemption for
transactions described in Section III(a)–
(f). The Department estimates that 2,986
insurance agents and brokers, pension
consultants, and insurance companies
will continue to take advantage of the
exemption for transactions described in
Section III(a)–(f). This estimate is based
on the following assumptions:
• According to the Insurance
Information Institute, in 2022, there
were 3,328 captive agents, which are
insurance agents who work for only one
insurance company.25 The Insurance
Information Institute also found that life
and annuity insurers accounted for 47.4
percent of all net premiums for the
insurance industry in 2022.26 Thus, the
Department estimates there are 1,577
insurance agents and brokers relying on
the existing provisions.27
• The Department expects that
pension consultants would continue to
23 The Department estimates approximately
94.2% of Retirement Investors receive disclosures
electronically, which is the sum of the estimated
share of Retirement Investors receiving electronic
disclosures under the 2002 electronic disclosure
safe harbor (58.2%) and the estimated share of
Retirement Investors receiving electronic
disclosures under the 2020 electronic disclosure
safe harbor (36.0%).
24 United States Post Service, First-Class Mail,
(2023), https://www.usps.com/ship/first-classmail.htm.
25 Insurance Information Institute, A Firm
Foundation: How Insurance Supports the
Economy—Captives by State, 2021–2022, https://
www.iii.org/publications/a-firm-foundation-howinsurance-supports-the-economy/a-50-statecommitment/captives-by-state (last visited August
25, 2023).
26 Insurance Information Institute, Facts +
Statistics: Industry Overview- Insurance Industry ata-Glance, https://www.iii.org/fact-statistic/factsstatistics-industry-overview.
27 The number of captive insurance agents is
estimated as: (3,328 captive agents × 47.4%) = 1,577
captive insurance agents serving the annuity
market.
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76015
rely on the existing PTE 84–24. Based
on 2021 Form 5500 data, the
Department estimates that 1,011
pension consultants serve the retirement
market.28
• In the Department’s 2016
Regulatory Impact Analysis, it estimated
that 398 insurance companies wrote
annuities.29 The Department requests
information on how the number of
insurance companies underwriting
annuities has changed since then.
In addition, investment company
principals may rely on the exemption.
In the Department’s experience,
investment company principal
underwriters almost never use PTE 84–
24. Therefore, the Department assumes
that 20 investment company principal
underwriters will engage in one
transaction annually under PTE 84–24,
10 of which are assumed to service
plans and 10 are assumed to service
IRAs.
The Department requests comments
on how many entities currently rely on
PTE 84–24 for transactions that do not
involve investment advice and would
continue to rely on the exemption as
amended.
Further, the Department estimates
that there are approximately 765,124
ERISA covered pension plans 30 and
approximately 67.8 million IRAs.31 The
Department estimates that 7.5 percent of
plans are new accounts or new financial
advice relationships 32 and that 3
percent of plans will use the exemption
for covered transactions.33 Based on
these assumptions, the Department
estimates that 1,722 plans would be
28 Internal Department of Labor calculations
based on the number of unique service providers
listed as pension consultants on the 2021 Form
5500 Schedule C.
29 This estimate is based on 2014 data from SNL
Financial on life insurance companies that reported
receiving either individual or group annuity
considerations. (See Employee Benefits Security
Administration, Regulating Advice Markets
Definition of the Term ‘‘Fiduciary’’ Conflicts of
Interest—Retirement Investment Advice Regulatory
Impact Analysis for Final Rule and Exemptions,
(April 2016), https://www.dol.gov/sites/dolgov/files/
EBSA/laws-and-regulations/rules-and-regulations/
completed-rulemaking/1210-AB32-2/ria.pdf.)
30 Employee Benefits Security Administration,
United States Department of Labor, Private Pension
Plan Bulletin: Abstract of 2021 Form 5500 Annual
Reports, Table A1 (2023; forthcoming).
31 Cerulli Associates, 2023 Retirement-End
Investor, Exhibit 5.12. The Cerulli Report, (2023).
32 EBSA identified 57,575 new plans in its 2021
Form 5500 filings, or 7.5 percent of all Form 5500
pension plan filings.
33 In 2020, 7 percent of traditional IRAs were held
by insurance companies. (See Investment Company
Institute, The Role of IRAs in US Households’
Saving for Retirement, 2020, 27(1) ICI Research
Perspective (2021), https://www.ici.org/system/files/
attachments/pdf/per27-01.pdf.) This number has
been adjusted downward to 3 percent to account for
the fact that some transactions are not covered by
this exemption.
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affected by the proposed amendments to
PTE 84–24.34
The proposed amendments to 84–24
would also affect new IRA accounts.
The Department does not have data on
the number of new IRA accounts that
are opened each year. However, in 2022,
of the 67.8 million IRA owners, 1.4
million, or approximately 2.1 percent,
opened an IRA for the first time.35
Inferring from this statistic, the
Department estimates that 2.1 percent of
IRA accounts are new each year. The
Department acknowledges that some
IRA owners may have multiple IRAs,
and as such, this statistic may
underestimate the percentage of new
IRAs opened.36 Additionally, the
Department estimates that about 3
percent of these new IRAs, or
approximately 52,000 IRAs, would use
PTE 84–24 for covered transactions.37
The proposed amendment would
exclude entities currently relying on the
exemption, under the existing
provisions for investment advice. As
such, the Department acknowledges that
the estimates discussed above may
hours drafting an authorization form for
IRA holders to sign. This results in an
hour burden of 17,598 hours with an
equivalent cost of $2.8 million.39
The Department expects that plans
will send the written authorization
through already established electronic
means, and thus, the Department does
not expect plans to incur any cost to
send the authorization. The Department
expects that 94.2 percent of written
authorization for IRAs will be sent
electronically at no additional burden.
The remaining 5.8 percent of
authorizations will be mailed. For paper
authorizations, the Department assumes
that clerical staff will spend two
minutes preparing and sending the
authorization resulting in an hour
burden of approximately 101 hours with
an equivalent cost of $6,434.40
In total, as presented in the table
below, the written authorization
requirement, under the new conditions
of relief, is expected to result in an
annual total hour burden of 17,699
hours with an equivalent cost of
$2,810,499.
overestimate the entities able to rely on
the exemption for relief for the
transactions described in Section III(a)–
(f). The Department requests comment
or data on whether the relief in
proposed Section II(a) for the covered
transactions in Section III(a)–(f) would
still be utilized after investment advice
is excluded.
1.2.1. Written Authorization From the
Independent Plan Fiduciary
Based on the estimates discussed
above, the Department estimates that
authorizing fiduciaries for 1,722 plans
and authorizing fiduciaries for 52,449
IRA holders would be required to send
an advance written authorization to the
2,996 financial institutions for IRAs 38
for exemptive relief for the transactions
described in Section III(a)–(f).
In the plan universe, it is assumed
that a legal professional would spend
five hours per plan reviewing the
disclosures and preparing an
authorization form. In the IRA universe,
it is assumed that a legal professional
working on behalf of the financial
institution for IRAs will spend three
TABLE 1—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH THE WRITTEN AUTHORIZATION
Year 1
Activity
Subsequent years
Equivalent burden
cost
Burden hours
Burden hours
Equivalent burden cost
Legal ..............................................................................
Clerical ...........................................................................
17,598
101
$2,804,065
6,434
17,598
101
$2,804,065
6,434
Total ........................................................................
17,699
2,810,499
17,699
2,810,499
The Department assumes 5.8 percent
of authorizations for IRAs would be
distributed by mail and that the
authorization will include two pages.
Accordingly, the Department estimates
an annual cost burden of approximately
$2,312.41
TABLE 2—MATERIAL AND POSTAGE COST ASSOCIATED WITH THE WRITTEN AUTHORIZATION
Year 1
Subsequent years
Activity
Pages
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Material and Postage Cost ......................................................
34 765,124 plans × 7.5 percent of plans are new
× 3 percent of plans with relationships with
insurance agents or pension consultants = 1,722
plans.
35 Cerulli Associates, U.S. Retirement EndInvestor 2023: Fostering Comprehensive
Relationships, The Cerulli Report.
36 The Department lacks data on the number of
IRA owners that own multiple IRAs. To provide
scope of magnitude, one source reported that in
2019, 19 percent of IRA owners contributed to both
a traditional IRA and Roth IRA. (See Investment
Company Institute, The Role of IRAs in US
Households’ Saving for Retirement, 2020, 27(1) ICI
Research Perspective (2021), https://www.ici.org/
system/files/attachments/pdf/per27-01.pdf.) This
statistic does not account for individuals who own
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Cost
2
$2,312
multiple IRAs of each type or those who did not
contribute in 2019, but it provides a lower bound.
37 In 2020, 7 percent of traditional IRAs were held
by insurance companies. (See Investment Company
Institute, The Role of IRAs in US Households’
Saving for Retirement, 2020, 27(1) ICI Research
Perspective (2021), https://www.ici.org/system/files/
attachments/pdf/per27-01.pdf.) This number has
been adjusted downward to 3 percent to reflect the
removal of transactions not covered by this
exemption. The number of IRAs affected is
estimated as: (83,252,750 IRAs × 2.1% IRAs
assumed to be new IRAs × 3% of IRAs held by
insurance companies) = 52,449 IRAs.
38 This includes 2,986 insurance agents and
brokers, pension consultants, and insurance
companies and 10 investment company
underwriters servicing IRAs.
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$2,312
39 The burden is estimated as: (1,722 plans × 5
hours) + (2,996 financial institutions × 3 hours) =
17,598 hours. A labor rate of approximately $159.34
is used for a legal professional. The labor rate is
applied in the following calculation: [(1,722 plans
× 5 hours) + (2,996 financial institutions × 3 hours)]
× $159.34 per hour = $2,804,065.
40 The burden is estimated as: ((52,449 IRAs × 5.8
percent paper × 2 minutes per plan) ÷ 60 minutes)
= 101 hours. A labor rate of $63.45 is used for a
clerical worker. The labor rate is applied in the
following calculation: ((52,449 IRAs × 5.8 percent
paper × 2 minutes per plan) ÷ 60 minutes) × $63.45
per hour = $6,434.
41 The material cost is estimated as: (52,449 IRA
authorizations × 5.8 percent paper) × [$0.66 + ($0.05
× 2)] = $2,312.
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TABLE 2—MATERIAL AND POSTAGE COST ASSOCIATED WITH THE WRITTEN AUTHORIZATION—Continued
Year 1
Subsequent years
Activity
Pages
Cost
Total ..................................................................................
1.2.2. Disclosure
Based on the estimates discussed
above, the Department estimates that
approximately 3,006 financial
institutions 42 would continue to utilize
the exemption for exemptive relief for
the transactions described in Section
III(a)–(f) for each plan and IRA. In total,
the Department estimates that 2,996
entities would prepare disclosures for
plans and 2,996 entities would prepare
disclosures for IRAs. The Department
assumes that an in-house attorney will
spend one hour of legal staff time
drafting the disclosure for plans and one
hour of legal staff time drafting the
2
Pages
Cost
2,312
disclosure for IRAs. This results in an
hour burden of 5,992 hours with an
equivalent cost of $954,765.43
The Department expects that the
disclosures for plans would be
distributed through already established
electronic means, and thus, the
Department does not expect plans to
incur any cost to send the disclosures.
The Department expects that 94.2
percent of disclosures for IRAs will be
sent electronically at no additional
burden. The remaining 5.8 percent of
authorizations will be mailed. For paper
copies, a clerical staff member is
assumed to require two minutes to
prepare and mail the required
2
2,312
information to the plan fiduciary. This
information will be sent to the 52,449
IRAs plus the 10 investment company
principal underwriters for IRAs entering
into an agreement with an insurance
agent, pension consultant, or mutual
fund principal underwriter, and based
on the above, the Department estimates
that this requirement results in an hour
burden of 84 hours with an equivalent
cost of $6,435.44
In total, as presented in the table
below, providing the pre-authorization
materials is expected to impose an
annual total hour burden of 6,093 hours
with an equivalent cost of $961,200.
TABLE 3—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH THE DISCLOSURE
Year 1
Activity
Subsequent years
Equivalent
burden cost
Burden hours
Equivalent
burden cost
Burden hours
Legal ........................................................................................
Clerical .....................................................................................
5,992
101
$954,765
6,435
5,992
101
$954,765
6,435
Total ..................................................................................
6,093
961,200
6,093
961,200
The Department assumes that this
information will include seven pages
with 94.2 percent of disclosures
distributed electronically through
traditional electronic methods at no
additional burden, and the remaining
5.8 percent of disclosures will be
mailed. Accordingly, the Department
estimates an annual cost burden of
approximately $2,313.45
TABLE 4—MATERIAL AND POSTAGE COST ASSOCIATED WITH THE DISCLOSURE
Year 1
Equivalent
burden cost
Pages
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Subsequent years
Equivalent
burden cost
Pages
Material and Postage Cost ......................................................
7
$2,313
7
$2,313
Total ..................................................................................
7
2,313
7
2,313
1.3 Costs Associated With Satisfying
Conditions for Transactions Described
in Section III(g)
The amendment would provide
investment advice fiduciaries with relief
for Independent Producers for
transactions in which the Independent
Producer receives an insurance sales
commission as a result of the provision
of investment advice, regarding the
purchase of an annuity contract of a
financial institution that is not an
Affiliate. The Department expects that
the financial institutions covered by this
proposal would be insurance companies
that directly write annuities. The
proposed amendments outline
conditions pertaining to disclosure,
42 This includes 2,986 insurance agents and
brokers, pension consultants, and insurance
companies and 20 investment company
underwriters servicing plans and IRAs.
43 The burden is estimated as: [2,996 financial
institutions × (1 hour for plans + 1 hour for IRAs)]
= 5,992 hours. A labor rate of approximately
$159.34 is used for a legal professional. The labor
rate is applied in the following calculation: [2,996
financial institutions × (1 hour for plans + 1 hour
for IRAs)] × $159.34 per hour = $954,765.
44 The burden is estimated as: {[(52,449 IRAs +
10 investment company principal underwriters for
IRAs) × 5.8 percent paper × 2 minutes] ÷ 60 minutes
= 101 hours. A labor rate of $63.45 is used for a
clerical worker. The labor rate is applied in the
following calculation: {[(52,449 IRAs + 10
investment company principal underwriters for
IRAs) × 5.8 percent paper × 2 minutes] ÷ 60
minutes} × $63.45 = $6,435.
45 The material cost is estimated as: [(52,449 IRA
authorizations + 10 investment company principal
underwriters for IRAs) × 5.8 percent paper] × [$0.66
+ ($0.05 × 7)] = $2,313.
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policies and procedures, and
retrospective reviews that need to be
satisfied to rely on the exemption. These
conditions are tailored to protect
Retirement Investors from the specific
conflicts that arise for Independent
Producers when providing investment
advice to Retirement Investors regarding
the purchase of an annuity.
The Independent Insurance Agents
and Brokers of America estimated that
there were 40,000 Independent
Producers in 2022.46 The Department
does not have data on what percent of
Independent Producers service the
retirement market. For the purposes of
this analysis, the Department assumes
that 10 percent, or 4,000, of these
Independent Producers service the
retirement market. The Department
requests comment on this assumption.
Insurance companies are primarily
regulated by states and no single
regulator records a nationwide count of
insurance companies. Although state
regulators track insurance companies,
the total number of insurance
companies cannot be calculated by
aggregating individual state totals,
because individual insurance
companies often operate in multiple
states. In the Department’s 2016
Regulatory Impact Analysis, it estimated
that 398 insurance companies wrote
annuities.47 The Department requests
information on how the number of
insurance companies underwriting
annuities has changed since then.
Some of these insurance companies
may not sell any annuity contracts in
the IRA or plans. Because of these data
limitations, the Department includes all
398 insurance companies in its cost
estimate, though this likely represents
an upper bound.
Insurance companies sell insurance
products through (1) captive insurance
agents that work for an insurance
company as employees or as
independent contractors who
exclusively sell the insurance
company’s products and (2)
independent agents who sell multiple
46 Annemarie McPherson Spears, 7 Findings From
the 2022 Agency Universe Study, (October 13,
2022), https://www.iamagazine.com/news/7findings-from-the-2022-agency-universe-study?__
hstc=79369803.5fd6a87d75ca
95f942e9dc33fed281b9.1691447156981.
1691447156981.1691447156981.1&__
hssc=79369803.3.1691447156981&__
hsfp=2180945085.
47 This estimate is based on 2014 data from SNL
Financial on life insurance companies reported
receiving either individual or group annuity
considerations. (See Conflict of Interest Final Rule,
Regulatory Impact Analysis for Final Rule and
Exemptions, U.S. Department of Labor (April 2016),
www.dol.gov/sites/dolgov/files/EBSA/laws-andregulations/rules-and-regulations/completedrulemaking/1210–AB32–2/ria.pdf).
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insurance companies’ products. In
recent years, the market has seen a shift
away from captive distribution toward
independent distribution.48
The Department does not have data
on the number of insurance companies
using captive agents or Independent
Producers. Based on data on the sales of
individual annuities by distribution
channel, the Department estimates that
approximately 46 percent of insurance
companies underwriting annuities sell
annuities through captive distribution
channels, while 54 percent sell
annuities through independent
distribution channels.49 For the
purposes of this analysis, the
Department estimates that 215
insurance companies distribute
annuities through independent channels
and would rely on PTE 84–24 for
transactions involving investment
advice.50
The Department estimates that 70 of
the 398 insurance companies are large
entities.51 For the purposes of this
analysis, the Department assumes the
percent of small insurance companies
using each distribution channel is the
same as for all insurance companies.
That is, the Department assumes that 46
percent of insurance companies (183
insurance companies) sell annuities
48 Ramnath Balasubramanian, Rajiv Dattani,
Asheet Mehta, & Andrew Reich, Unbundling Value:
How Leading Insurers Identify Competitive
Advantage, McKinsey & Company, (June 2022),
https://www.mckinsey.com/industries/financialservices/our-insights/unbundling-value-howleading-insurers-identify-competitive-advantage;
Sheryl Moore, The Annuity Model Is Broken, Wink
Intel, (June 2022), https://www.winkintel.com/2022/
06/the-annuity-model-is-broken-reprint/.
49 According to the Insurance Information
Institute, in 2022, 20 percent of individual
annuities were sold through independent brokerdealers, 18 percent through independent agents, 15
percent through career agents, 24 percent through
banks, 17 percent through full-service national
broker-dealers, 3 percent through direct-response,
and 2 percent through other methods. For the
purposes of this analysis, the Department considers
those sales made by career agents and full-service
national broker-dealers to be ‘‘captive,’’ and those
made by independent broker-dealers and
independent agents to be ‘‘independent.’’ The
Department assumes that 46 percent of sales by
banks are captive, while 54 percent of sales by
banks are independent. As such, the Department
assumes that 46 percent of sales are sold through
captive channels {[15% + 17% + (46% × 24%)]/
(100%¥6%)}, while 54 percent of sales are sold
through independent channels {[20% + 18% +
(54% × 24%)]/(100%¥6%)}.
50 The number of insurance companies using
captive distribution channels is estimated as (398
× 46%) = 183 insurance companies. The number of
insurance companies using independent
distribution channels is estimated as (398¥183) =
215 insurance companies.
51 LIMRA estimates that, in 2016, 70 insurers had
more than $38.5 million in sales, which is the Small
Business Administration’s threshold for a large
entity within the insurance industry. (See LIMRA,
U.S. Individual Annuity Yearbook: 2016 Data,
LIMRA Secure Retirement Institute (2017)).
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through captive distribution channels,
of which 151 are estimated to be small
insurance companies and the remaining
32 large insurance companies.52
Additionally, 54 percent (215 insurance
companies) sell annuities through
independent distribution channels, of
which 177 are estimated to be small
insurance companies and the remaining
38 are large.53 The Department
recognizes that the distribution of sales
by distribution channel is likely
different from the distribution of
insurance companies by distribution
channel. The Department requests
comment on how many insurance
companies sell annuities through
captive and independent distribution
channels. The Department also requests
comment on whether, or how many,
insurance companies may rely on both
methods of distribution.
1.3.1 Disclosures
As discussed above, the Department
assumes that 4,000 Independent
Producers service the retirement market,
selling the products of 215 insurance
companies. For more generalized
disclosures, the Department assumes
that insurance companies would
prepare and provide disclosures to
Independent Producers selling their
products. However, some of the
disclosures are tailored specifically to
the Independent Producer. The
Department assumes that these
disclosures would need to be prepared
by the Independent Producer
themselves. The Department recognizes
that some may rely on intermediaries in
the distribution channel to prepare more
specific disclosures; however, the
Department expects that the costs
associated with the preparation would
be covered by commissions retained by
the intermediary for its services.
1.3.1.1. Written Acknowledgement That
the Independent Producer Is a Fiduciary
by the Independent Producer
The Department is including a model
statement in the preamble to PTE 84–24
that details what should be included in
a fiduciary acknowledgment for
52 The number of large insurance companies
using a captive distribution channel is estimated as:
(70 large insurance companies × 46%) = 32
insurance companies. The number of small
insurance companies using a captive distribution
channel is estimated as: (183 insurance
companies—32 large insurance companies) = 151
small insurance companies.
53 The number of large insurance companies
using an independent distribution channel is
estimated as: (70 large insurance companies × 54%)
= 38 insurance companies. The number of small
insurance companies using an independent
distribution channel is estimated as: (215 insurance
companies¥38 large insurance companies) = 177
small insurance companies.
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financial institutions.54 The Department
assumes that the time associated with
preparing the disclosures would be
minimal. Further, these disclosures are
expected to be uniform in nature.
Accordingly, the Department estimates
that these disclosures would not take a
significant amount of time to prepare.
Due to the nature of Independent
Producers, the Department assumes that
most financial institutions would make
draft disclosures available to
Independent Producers pertaining to
their fiduciary status. However, the
Department expects that a small
percentage of Independent Producers
may draft their own disclosures. The
Department assumes that an in-house
attorney for all 215 financial institutions
as well as 5 percent of Independent
Producers, or 200 Independent
Producers, would spend 10 minutes of
legal staff time to produce a written
acknowledgement in the first year. This
results in an estimated hour burden of
approximately 69 with an equivalent
cost of $11,021 in the first year.55
TABLE 5—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH THE FIDUCIARY ACKNOWLEDGEMENT
Year 1
Activity
Subsequent years
Equivalent
burden cost
Burden hours
Equivalent
burden cost
Burden hours
Legal ........................................................................................
69
$11,021
0
$0
Total ..................................................................................
69
11,021
0
0
1.3.1.2 Written Statement of the Best
Interest Standard of Care Owed by the
Independent Producer
As discussed above, the Department
assumes that 4,000 Independent
Producers service the retirement market,
selling the products of 215 financial
institutions. Due to the nature of
Independent Producers, the Department
assumes that most financial institutions
would make draft disclosures available
to Independent Producers, pertaining to
the annuities they offer. The Department
assumes that an in-house attorney for all
215 financial institutions as well as 5
percent of Independent Producers, or
200 Independent Producers, would
spend 30 minutes of legal staff time to
prepare the statement in the first year.
This results in an hour burden of 208
hours with an equivalent cost of $33,063
in the first year.56
TABLE 6—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH THE WRITTEN STATEMENT OF THE BEST INTEREST
STANDARD OF CARE OWED
Year 1
Activity
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Burden hours
Subsequent years
Equivalent burden
cost
Equivalent burden
cost
Burden hours
Legal ........................................................................................
208
$33,063
0
$0
Total ..................................................................................
208
33,063
0
0
1.3.1.2. Written Description of the
Services Provided and the Products the
Independent Producer Is Licensed and
Authorized To Sell
As discussed above, the Department
assumes that 4,000 Independent
Producers service the retirement market,
selling the products of 215 insurance
companies. For disclosures tailored
more specifically to an individual
Independent Producer, the Department
assumes that the disclosure would need
to be prepared by the Independent
Producer. The Department recognizes
that many Independent Producers may
not have the internal resources to
prepare such disclosure. The
Department expects that some may rely
on intermediaries in the distribution
channel to prepare the disclosures and
some may seek external legal support.
However, the Department expects that
the costs associated with the
preparation would be covered by
commission retained by the
intermediary for its services or by the
fee paid to external legal support. As
such, the Department still attributes this
cost back to the Independent Producer.
The Department requests comment on
this assumption.
Accordingly, the Department assumes
that all 4,000 Independent Producers in
this analysis would need to prepare the
disclosure. The Department assumes
that, for each of these Independent
Producers, an attorney would spend 30
minutes of legal staff time drafting the
written description. This results in an
hour burden of 2,000 hours with an
equivalent cost of $318,680 in the first
year.57
54 85 FR 82798, 82827 (Dec. 18, 2020). The model
statement was also included in Frequently Asked
Questions in April 2021, New Fiduciary Advice
Exemption: PTE 2020–02 Improving Investment
Advice for Workers & Retirees Frequently Asked
Questions, Q13, (April 2021), https://www.dol.gov/
sites/dolgov/files/ebsa/about-ebsa/our-activities/
resource-center/faqs/new-fiduciary-adviceexemption.pdf.
55 The burden is estimated as: {[(215 financial
institutions + 200 Independent Producers) × (10
minutes)] ÷ 60 minutes} = 69 hours. A labor rate
of approximately $159.34 is used for a legal
professional. The labor rate is applied in the
following calculation: {[(215 financial institutions +
200 Independent Producers) × (10 minutes)] ÷ 60
minutes} × $159.34 = $11,021.
56 The burden is estimated as: {[(215 financial
institutions + 200 Independent Producers) × (30
minutes)] ÷ 60 minutes} = 208 hours. A labor rate
of approximately $159.34 is used for a legal
professional. The labor rate is applied in the
following calculation: {[(215 financial institutions +
200 Independent Producers) × (30 minutes)] ÷ 60
minutes} × $159.34 = $33,063.
57 The burden is estimated as: (4,000 Independent
Producers × 0.5 hours) = 2,000 hours. A labor rate
of approximately $159.34 is used for a legal
professional. The labor rate is applied in the
following calculation: (4,000 Independent
Producers × 0.5 hours) × $159.34 = $318,680.
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TABLE 7—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH THE WRITTEN DESCRIPTION OF SERVICE PROVIDED
Year 1
Activity
Subsequent years
Equivalent burden
cost
Burden hours
Equivalent burden
cost
Burden hours
Legal ........................................................................................
2,000
$318,680
0
$0
Total ..................................................................................
2,000
318,680
0
0
1.3.1.4. A Written Statement of the
Independent Producer’s Material
Conflicts of Interest and the Amount of
the Insurance Commission that Would
Be Paid to the Independent Producer in
Connection With the Purchase by a
Retirement Investor of the
Recommended Annuity
As discussed above, for disclosures
tailored more specifically to an
individual Independent Producer, the
Department assumes that the disclosure
would need to be prepared by the
Independent Producer. The Department
recognizes that many Independent
Producers may not have the internal
resources to prepare such disclosure,
however they may already have a
similar statement to satisfy other legal
requirements. The Department expects
that some may rely on intermediaries in
the distribution channel to prepare the
disclosures and some may seek external
legal support. However, the Department
expects that the costs associated with
the preparation would be covered by the
commission retained by the
intermediary for its services or by the
fee paid to external legal support. As
such, the Department still attributes this
cost back to the Independent Producer.
The Department requests comment on
this assumption.
Accordingly, the Department assumes
that all 4,000 Independent Producers in
this analysis would need to prepare the
disclosure. The Department assumes
that, for each of these entities, an
attorney would spend one hour of legal
staff time drafting the written
description. This results in an hour
burden of 4,000 hours with an
equivalent cost of $637,360 in the first
year.58
TABLE 8—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH THE WRITTEN STATEMENT OF THE INDEPENDENT
PRODUCER’S MATERIAL CONFLICTS OF INTEREST
Year 1
Activity
Burden hours
Equivalent burden
cost
Equivalent burden
cost
Burden hours
Legal ........................................................................................
4,000
$637,360
0
$0
Total ..................................................................................
4,000
637,360
0
0
The proposed amendment would
require an Independent Producer to
provide a disclosure to investors that
documents their consideration as to
whether a recommended annuity or
rollover is in the Retirement Investor’s
best interest. Due to the nature of this
disclosure, the Department assumes that
the content of the disclosure would
need to be prepared by the Independent
Producer. The Department recognizes
that some may rely on intermediaries in
the distribution channel, and some may
seek external legal support to assist with
drafting the disclosures. However, the
Department expects that most
Independent Producers would prepare
the disclosure themselves. The
Department requests comment on this
assumption.
For the purposes of this analysis, the
Department uses its estimate for the
number of new IRA accounts held by
insurance companies as a proxy for the
number of Retirement Investors that
have relationships with Independent
Producers that would engage in
transactions covered under the
exemption. As such, the Department
estimates that 52,449 Retirement
Investors would receive documentation
on whether the recommended annuity is
in their best interest each year. 59
The Department assumes that, for
each of these Retirement Investors, an
Independent Producer would spend one
hour of a financial manager’s time
drafting the documentation. This results
in an estimated hour burden of 52,449
hours with an equivalent cost of $8.3
million annually.60
58 The burden is estimated as: (4,000 Independent
Producers × 1 hour) = 4,000 hours. A labor rate of
approximately $159.34 is used for a legal
professional. The labor rate is applied in the
following calculation: (4,000 hours × $159.34) =
$637,360.
59 In 2020, 7 percent of traditional IRAs were held
by insurance companies. (See Investment Company
Institute, The Role of IRAs in US Households’
Saving for Retirement, 2020, 27(1) ICI Research
Perspective (2021). https://www.ici.org/system/files/
attachments/pdf/per27-01.pdf.) This number has
been adjusted downward to 3 percent to reflect the
removal of transactions not covered by this
exemption.). The number of IRAs affected is
estimated as: (83,252,750 IRAs × 2.1% IRAs
assumed to be new IRAs × 3% of IRAs held by
insurance companies) = 52,449 IRAs.
60 The burden is estimated as: (52,449 rollovers ×
1 hour) = 52,449 hours. A labor rate of
approximately $158.94 is used for an Independent
Producer. The labor rate is applied in the following
calculation: (52,449 rollovers × 1 hour) × $158.94
= $8,336,244.
1.3.1.5 Before Recommending an
Annuity, Engaging in a Rollover, or
Making a Recommendation to a Plan
Participant as to the Post-Rollover
Investment of Assets Currently Held in
a Plan, the Independent Producer Must
Document Its Conclusions as to Whether
a Rollover Is in the Investor’s Best
Interest
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TABLE 9—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH THE ROLLOVER DOCUMENTATION
Year 1
Activity
Subsequent years
Equivalent burden
cost
Burden hours
Equivalent burden
cost
Burden hours
Insurance Sales Agent ............................................................
52,449
$8,336,244
52,449
$8,336,244
Total ..................................................................................
52,449
8,336,244
52,449
8,336,244
that 5.8 percent of disclosures would be
mailed. Accordingly, of the estimated
52,449 affected Retirement Investors,
3,042 Retirement Investors are estimated
to receive paper disclosures.61 For paper
copies, a clerical staff member is
1.3.1.6 Mailing Cost for Disclosures
Sent From Independent Producers to
Retirement Investors
As discussed at the beginning of the
cost section, The Department assumes
assumed to require five minutes to
prepare and mail the required
information to the Retirement Investor.
This requirement results in an estimated
hour burden of 254 hours with an
equivalent cost of $16,085.62
TABLE 10—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH PREPARING THE DISCLOSURES
Year 1
Activity
Subsequent years
Equivalent burden
cost
Burden hours
Equivalent burden
cost
Burden hours
Clerical .....................................................................................
254
$16,085
254
$16,085
Total ..................................................................................
254
16,085
254
16,085
The Department assumes that this
information would include seven pages,
resulting in an annual cost burden for
material and paper costs of $3,072.63
TABLE 11—MATERIAL COST ASSOCIATED WITH THE DISCLOSURES
Year 1
Activity
Equivalent burden
cost
Pages
Equivalent burden
cost
Pages
Cost ..........................................................................................
7
$3,072
7
$3,072
Total ..................................................................................
7
3,072
7
3,072
Additionally, Independent Producers
would be required to send the
documentation to the insurance
company. The Department expects that
such documentation would be sent
electronically and result in a de minimis
burden. The Department requests
comment on this assumption.
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Subsequent years
61 This is estimated as: (52,449 Retirement
Investors × 5.8%) = 3,042 paper disclosures.
62 This is estimated as: [(3,042 paper disclosures
× 5 minutes) ÷ 60 minutes] = 254 hours. A labor
rate of $63.45 is used for a clerical worker. The
labor rate is applied in the following calculation:
[(3,042 paper disclosures × 5 minutes) ÷ 60 minutes]
× $63.45 = $16,085.
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As discussed above, the Department
estimates that 215 financial institutions
would need to meet this requirement, of
which 177 are estimated to be small and
38 are estimated to be large.64 The
Department assumes that, for each large
insurance company, an in-house
attorney would spend 10 hours of legal
staff time drafting the written
description, and for each small
insurance company, an in-house
attorney would spend 5 hours of legal
staff time. This results in an hour
burden of 1,265 hours with an
equivalent cost of $201,565 in the first
year.65
In the following years, the Department
assumes for each insurance company,
an in-house attorney would spend two
hours of legal staff time reviewing the
policies and procedures. This results in
an hour burden of 430 hours with an
63 This is estimated as: 3,042 rollovers resulting
in a paper disclosure × [$0.66 postage + ($0.05 per
page × 7 pages)] = $3,072.
64 The number of large insurance companies
using an independent distribution channel is
estimated as: (70 large insurance companies × 54%)
= 38 insurance companies. The number of small
insurance companies using an independent
distribution channel is estimated as: (215 insurance
companies¥38 large insurance companies) = 177
small insurance companies.
65 This is estimated as: [(177 small insurance
companies × 5 hours) + (38 large insurance
companies × 10 hours)] = 1,265 hours. A labor rate
of $159.34 is used for a legal professional. The labor
rate is applied in the following calculation: [(177
small insurance companies × 5 hours) + (38 large
insurance companies × 10 hours)] × $159.34 =
$201,565.
1.3.2
Policies and Procedures
1.3.2.1 Financial Institutions Must
Establish, Maintain, and Enforce
Written Policies and Procedures for the
Review of Each Recommendation Before
an Annuity Is Issued to a Retirement
Investor, and the Financial Institution
Review Its Policies and Procedures at
Least Annually
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equivalent cost of $68,516 in subsequent
years.66
The proposed amendments would
also require financial institutions to
provide their complete policies and
procedures to the Department upon
request. As discussed above for PTE
2020–02, the Department estimates that
it would request 165 policies and
procedures in the first year and 50 in
subsequent years. Assuming that the
number of requests for the entities
covered under PTE 2020–02 is
equivalent to the number of requests for
the entities covered under PTE 84–24,
the Department assumes that it will
request two policies and procedures
from insurers in the first year and one
request in subsequent years, on
average.67 This results in an estimated
cost of approximately $32 in the first
year 68 and $16 in subsequent years.69
Insurers would also be required to
review each of the Independent
Producer’s recommendations before an
annuity is issued to a Retirement
Investor to ensure compliance with the
Impartial Conduct Standards and other
conditions of this exemption. This
requirement is consistent with the
language in NAIC’s 2010 Model
Regulation 275, Suitability in Annuity
Transactions,70 and the 2020 revisions
to Model Regulation 275, which
expanded the suitability standard to a
best interest standard.71 Most states
have adopted some form of the Model
Regulation 275.72 As such, the
Department expects that reviewing
recommendations before an annuity is
issued is common industry practice.
Accordingly, the Department expects
that financial institutions would incur a
de minimis burden to comply with the
proposed amendments, when already
complying with Model Regulation 275.
The Department requests comment on
this assumption.
TABLE 12—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH POLICIES AND PROCEDURES
Year 1
Activity
Burden hours
Equivalent burden
cost
Burden hours
Equivalent burden
cost
Legal ........................................................................................
Clerical .....................................................................................
1,265
1
$201,565
32
430
1
$68,516
16
Total ..................................................................................
1,266
201,597
430
68,532
1.3.3. Retrospective Review
The proposed amendment would
require financial institutions to conduct
a retrospective review at least annually.
The review would be required to be
reasonably designed to prevent
violations of and achieve compliance
with (1) the Impartial Conduct
Standards, (2) the terms of this
exemption, and (3) the policies and
procedures governing compliance with
the exemption. The review would be
required to evaluate the effectiveness of
the supervision system, any
noncompliance discovered in
connection with the review, and
corrective actions taken or
recommended, if any. Financial
institutions would also be required to
provide the Independent Producer with
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Subsequent years
66 This is estimated as: (215 insurance companies
× 2 hours) = 430 hours. A labor rate of $159.34 is
used for a legal professional. The labor rate is
applied in the following calculation: (215 insurance
companies × 2 hours) × $159.34 = $68,516.
67 The number of requests in the first year is
estimated as 215 insurance companies × (165
requests in PTE 2020–02/19,290 financial
institutions in PTE 2020–02) = 2 requests. The
number of requests in subsequent years is estimated
as: 215 insurance companies × (50 requests in PTE
2020–02/19,290 financial institutions in PTE 2020–
02) = 1 request.
68 The burden is estimated as: [(2 × 15 minutes)
÷ 60 minutes] = 0.5 hours. A labor rate of $63.45
is used for a clerical worker. The labor rate is
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The Department estimates that 215
financial institutions would need to
meet this requirement. For this
requirement the information collection
is documenting the findings of the
retrospective review. The Departments
lacks data on, for a given insurance
company, how many Independent
Producers, on average, sell their
annuities. For the purposes of this
analysis, the Department assumes that,
on average, each Independent Producer
sells the products of three financial
institutions. From each of these
financial institutions, they may sell
multiple products. As such, the
Department assumes that each year,
insurance companies would need to
prepare a total of 12,000 retrospective
reviews,73 or on average, each insurance
company would need to prepare
approximately 56 retrospective
reviews.74 The Department requests
comment on this estimate. The
Department assumes that, for each
Independent Producer selling an
insurance company’s products, an inhouse attorney at the insurance
company would spend one hour of legal
staff time, on average, drafting the
retrospective review. This results in an
estimated hour burden of 12,000 hours
with an equivalent cost of $1.9
million.75
applied in the following calculation: [(2 × 15
minutes) ÷ 60 minutes] × $63.45 = $31.73.
69 The burden is estimated as: [(1 × 15 minutes)
÷ 60 minutes] = 0.25 hours. A labor rate of $63.45
is used for a clerical worker. The labor rate is
applied in the following calculation: [(1 × 15
minutes) ÷ 60 minutes] × $63.45 = $15.86.
70 NAIC Model Suitability Regulations,
§ 6(F)(1)(d) (2010), https://naic.soutronglobal.net/
Portal/Public/en-GB/RecordView/Index/25201.
71 NAIC Model Suitability Regulations,
§ 6(C)(1)(d) (2020), https://content.naic.org/sites/
default/files/inline-files/MDL-275.pdf.
72 As of October of 2021, only three states had not
adopted some form of Model Regulation 275. (See
A.D. Banker & Company, Annuity Best Interest State
Map and FAQs, (October 2021), https://blog.
adbanker.com/annuity-best-interest-state-map-andfaqs).
73 This is estimated as: (4,000 Independent
Producers × 3 insurance companies covered) =
12,000 retrospective reviews.
74 This is estimated as: (12,000/215) = 55.81
retrospective reviews, on average
75 This is estimated as: (12,000 retrospective
reviews × 1 hour) = 12,000 hours. A labor rate of
$159.34 is used for a legal professional. The labor
rate is applied in the following calculation: (12,000
retrospective reviews × 1 hour) × $159.34 =
$1,912,080.
the underlying methodology and results
of the retrospective review.
1.3.3.1. The Insurance Company Must
Conduct a Retrospective Review, at
Least Annually, for Each Independent
Producer That Sells the Insurance
Company’s Annuity Contracts
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TABLE 13—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH THE RETROSPECTIVE REVIEW
Year 1
Activity
Subsequent years
Equivalent burden
cost
Burden hours
Burden Hours
Equivalent burden
cost
Legal ........................................................................................
12,000
$1,912,080
12,000
$1,912,080
Total ..................................................................................
12,000
1,912,080
12,000
1,912,080
1.3.3.2. Certification by the Senior
Executive Officer of the Insurance
Company
The Department assumes it would
take a Senior Executive Officer 15
minutes to certify the report. This
results in an annual hour burden of
3,000 hours with an equivalent cost of
$384,330.76
TABLE 14—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH THE CERTIFICATION BY THE SENIOR EXECUTIVE
OFFICER
Year 1
Activity
Subsequent years
Equivalent burden
cost
Burden hours
Burden hours
Equivalent burden
cost
Senior Executive Officer ..........................................................
3,000
$384,330
3,000
$384,330
Total ..................................................................................
3,000
384,330
3,000
384,330
1.3.3.3. The Insurance Company
Provides to the Independent Producer
the Methodology and Results of the
Retrospective Review
The Department assumes that the
insurance company would provide the
methodology and results electronically.
The Department requests comment on
this assumption. The Department
estimates that it would take clerical staff
five minutes to prepare and send each
of the estimated 12,000 retrospective
reviews. This results in an annual hour
burden of 1,000 hours with an
equivalent cost of $63,450.77 The
Department expects that the results
would be provided electronically, thus
the Department does not expect there to
be any material costs with providing
Independent Producers with the
retrospective review.
TABLE 15—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH THE PROVISION OF THE RESULTS OF THE
RETROSPECTIVE REVIEW
Year 1
Activity
Burden hours
Equivalent burden
cost
Burden hours
Equivalent burden
cost
Clerical .....................................................................................
1,000
$63,450
1,000
$63,450
Total ..................................................................................
1,000
63,450
1,000
63,450
1.3.4. Recordkeeping Requirement
The proposed amendment would
change the current recordkeeping
requirements to incorporate a new
provision that is similar to the
recordkeeping provision in PTE 2020–
02. This requirement would replace the
more limited existing recordkeeping
requirement in current version of PTE
84–24, which requires sufficient records
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76 This is estimated as: [(12,000 retrospective
reviews × 15 minutes) ÷ 60 minutes] = 3,000 hours.
A labor rate of $128.11 is used for a Senior
Executive Officer. The labor rate is applied in the
following calculation: [(12,000 retrospective
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to demonstrate that the conditions of the
exemption have been met. The
Department does not have data on how
many pension consultants, insurance
companies, and investment company
principal underwriters would continue
to rely on PTE 84–24 as amended
without also complying with the
amended PTE 2020–02. In this analysis,
the Department assumes that all of the
pension consultants and investment
company principal underwriters
continuing to rely on the amended PTE
84–24 would also rely on the amended
PTE 2020–02. Thus, to avoid double
counting the compliance cost, this
analysis does not include the cost
associated with the proposed
recordkeeping requirement for these
entities.
reviews × 15 minutes) ÷ 60 minutes] × $128.11 =
$384,330.
77 This is estimated as: [(12,000 retrospective
reviews × 5 minutes) ÷ 60 minutes] = 1,000 hours.
A labor rate of $63.45 is used for a clerical worker.
The labor rate is applied in the following
calculation: [(12,000 retrospective reviews × 5
minutes) ÷ 60 minutes] × $63.45 = $63,450.
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For this analysis, the Department
considers the cost for insurance
companies and Independent Producers
complying with the proposed
recordkeeping requirements. The
Department estimates that the
additional time needed to maintain
records for the financial institutions to
be consistent with the exemption would
take an Independent Producer 2 hours,
resulting in an hour burden of 8,430
hours and an equivalent cost of $1.3
million.78
TABLE 16—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH THE RECORDKEEPING REQUIREMENT
Year 1
Activity
Subsequent years
Equivalent burden
cost
Burden hours
Burden hours
Equivalent burden
cost
Legal ........................................................................................
8,430
$1,340,036
8,430
$1,340,036
Total ..................................................................................
8,430
1,340,036
8,430
1,340,036
For the purposes of this analysis, the
Department assumes that, on average, an
Independent Producer would receive 10
requests per year and that preparing and
sending each request would take a legal
professional, on average, 30 minutes.
Based on these assumptions, the
Department estimates that the proposed
amendments would result in an annual
hour burden of 20,000 hours with an
equivalent cost of approximately $3.2
million.79 The Department requests
comment on how often financial
institutions would receive requests for
records and how long the preparation of
such records would take.
TABLE 17—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH THE RECORDKEEPING REQUIREMENT
Year 1
Activity
Burden hours
Equivalent burden
cost
Burden hours
Equivalent burden
cost
Independent Producer .............................................................
20,000
$3,178,800
20,000
$3,178,800
Total ..................................................................................
20,000
3,178,800
20,000
3,178,800
1.4. Overall Summary
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Subsequent years
Estimated Total Annual Burden Cost:
$8,457.
These paperwork burden estimates
are summarized as follows:
Type of Review: Revision of an
Existing Collection.
Agency: Employee Benefits Security
Administration, Department of Labor.
Title: Prohibited Transaction
Exemption (PTE) 84–24 for Certain
Transactions Involving Insurance
Agents and Brokers, Pension
Consultants, Insurance Companies, and
Investment Company Principal
Underwriters.
OMB Control Number: 1210–0158.
Affected Public: Businesses or other
for-profits; not for profit institutions.
Estimated Number of Respondents:
7,221.
Estimated Number of Annual
Responses: 119,376.
Frequency of Response: Initially,
Annually, When engaging in exempted
transaction.
Estimated Total Annual Burden
Hours: 123,726 hours.
The Regulatory Flexibility Act
(RFA) 80 imposes certain requirements
on rules subject to the notice and
comment requirements of section 553(b)
of the Administrative Procedure Act or
any other law.81 Under section 603 of
the RFA, agencies must submit an initial
regulatory flexibility analysis (IRFA) of
a proposal that is likely to have a
significant economic impact on a
substantial number of small entities,
such as small businesses, organizations,
and governmental jurisdictions. This
proposed amended exemption, along
with related amended exemptions and a
proposed rule amendment published
elsewhere in this issue of the Federal
Register, is part of a rulemaking
regarding the definition of fiduciary
investment advice, which the
Department has determined likely will
have a significant economic impact on
a substantial number of small entities.
78 This is estimated as: (4,000 Independent
Producers + 215 insurance companies) × 2 hours =
8,430 hours. A labor rate of $158.94 is used for an
Independent Producer and a rate of $159.34 for an
insurance company legal professional. The labor
rate is applied in the following calculation: [(4,000
Independent Producers × 2 hours × $158.94) + (215
insurance companies × 2 hours × $159.34)] =
$1,340,036.
79 The burden is estimated as: {[(4,000
Independent Producers × 10 requests) × 30 minutes]
÷ 60 minutes} = 20,000 hours. A labor rate of
$158.94 is used for an Independent Producer. The
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Regulatory Flexibility Act
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The impact of this proposed amendment
on small entities is included in the IRFA
for the entire project, which can be
found in the related notice of proposed
rulemaking found elsewhere in this
edition of the Federal Register.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates
Reform Act of 1995 82 requires each
federal agency to prepare a written
statement assessing the effects of any
federal mandate in a proposed or final
rule that may result in an expenditure
of $100 million or more (adjusted
annually for inflation with the base year
1995) in any 1 year by state, local, and
tribal governments, in the aggregate, or
by the private sector. For purposes of
the Unfunded Mandates Reform Act, as
well as Executive Order 12875, this
proposed amended exemption does not
include any Federal mandate that will
result in such expenditures.
labor rate is applied in the following calculation:
{[(4,000 Independent Producers × 10 requests) × 30
minutes] ÷ 60 minutes} × $158.94 = $3,178,800.
80 5 U.S.C. 601 et seq.
81 5 U.S.C. 601(2), 603(a); see also 5 U.S.C. 551.
82 Public Law 104–4, 109 Stat. 48 (Jan. 4, 1995).
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Federalism Statement
Executive Order 13132 outlines
fundamental principles of federalism. It
also requires federal agencies to adhere
to specific criteria in formulating and
implementing policies that have
‘‘substantial direct effects’’ on the states,
the relationship between the national
government and states, or on the
distribution of power and
responsibilities among the various
levels of government. Federal agencies
promulgating regulations that have
these federalism implications must
consult with State and local officials,
and describe the extent of their
consultation and the nature of the
concerns of State and local officials in
the preamble to the final regulation.
Notwithstanding this, ERISA section
514 provides, with certain exceptions
specifically enumerated, that the
provisions of Titles I and IV of ERISA
supersede any and all laws of the States
as they relate to any employee benefit
plan covered under ERISA.
The Department does not intend this
exemption to change the scope or effect
of ERISA section 514, including the
savings clause in ERISA section
514(b)(2)(A) for State regulation of
securities, banking, or insurance laws.
Ultimately, the Department does not
believe this proposed class exemption
has federalism implications because it
has no substantial direct effect on the
States, on the relationship between the
National government and the States, or
on the distribution of power and
responsibilities among the various
levels of government.
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General Information
The attention of interested persons is
directed to the following: (1) The fact
that a transaction is the subject of an
exemption under ERISA section 408(a)
and Code section 4975(c)(2) does not
relieve a fiduciary, or other party in
interest or disqualified person with
respect to a Plan, from certain other
provisions of ERISA and the Code,
including any prohibited transaction
provisions to which the exemption does
not apply and the general fiduciary
responsibility provisions of ERISA
section 404 which require, among other
things, that a fiduciary act prudently
and discharge his or her duties
respecting the Plan solely in the
interests of the participants and
beneficiaries of the Plan. Additionally,
the fact that a transaction is the subject
of an exemption does not affect the
requirement of Code section 401(a) that
the Plan must operate for the exclusive
benefit of the employees of the
employer maintaining the Plan and their
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beneficiaries; (2) Before the proposed
exemption may be granted under ERISA
section 408(a) and Code section
4975(c)(2), the Department must find
that it is administratively feasible, in the
interests of Plans and their participants
and beneficiaries and IRA owners, and
protective of the rights of participants
and beneficiaries of the Plan and IRA
owners; (3) If granted, the proposed
exemption is applicable to a particular
transaction only if the transaction
satisfies the conditions specified in the
exemption; and (4) The proposed
exemption, if granted, is supplemental
to, and not in derogation of, any other
provisions of ERISA and the Code,
including statutory or administrative
exemptions and transitional rules.
Furthermore, the fact that a transaction
is subject to an administrative or
statutory exemption is not dispositive of
whether the transaction is in fact a
prohibited transaction.
The Department is proposing the
following amendment on its own
motion, pursuant to its authority under
ERISA section 408(a) and Code section
4975(c)(2) and in accordance with
procedures set forth in 29 CFR part
2570, subpart B (76 FR 66637 (October
27, 2011)).83
Proposed Amendment to PTE 84–24
Section I—Retroactive Application
The restrictions of sections
406(a)(1)(A) through (D) and 406(b) of
the Act and the taxes imposed by
section 4975 of the Code do not apply
to any of the transactions described in
section III of this exemption in
connection with purchases made before
November 1, 1977, if the conditions set
forth in section IV are met.
Section II—Prospective Application
(a) Except for fiduciaries providing
investment advice within the meaning
of ERISA section 3(21)(A)(ii) or Code
section 4975(e)(3)(B) and regulations
thereunder, the restrictions of section
406(a)(1)(A) through (D) and 406(b) of
the Act and the taxes imposed by
section 4975 of the Code do not apply
to any of the transactions described in
section III(a)–(f) of this exemption in
connection with purchases made after
October 31, 1977, if the conditions set
forth in sections IV, V and IX are met.
(b) Effective on the date that is 60
days after the publication of a final
amendment in the Federal Register, the
restrictions of ERISA sections
83 Reorganization Plan No. 4 of 1978 (5 U.S.C.
App. 1 (2018)) generally transferred the authority of
the Secretary of the Treasury to grant administrative
exemptions under Code section 4975 to the
Secretary of Labor.
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76025
406(a)(1)(D) and 406(b) and the taxes
imposed by Code section 4975(a) and (b)
by reason of Code sections 4975(c)(1)(E)
and (F) for fiduciaries providing
investment advice within the meaning
of ERISA section 3(21)(A)(ii) or Code
section 4975(e)(3)(B) and regulations
thereunder will not apply if the
fiduciaries are Independent Producers,
the transactions meet the requirements
described in Section III(g), the
conditions set forth in Sections VI, VII
and IX are satisfied, and the
Independent Producer and Insurer are
not ineligible under Section VIII.
Section III—Transactions
(a) The receipt, directly or indirectly,
by an insurance agent or broker or a
pension consultant of a Mutual Fund
Commission or an Insurance Sales
Commission from an insurance
company in connection with the
purchase, with plan assets, of an
insurance or annuity contract.
(b) The receipt of a Mutual Fund
Commission by a Principal Underwriter
for an investment company registered
under the Investment Company Act of
1940 (hereinafter referred to as an
investment company) in connection
with the purchase, with plan assets, of
securities issued by an investment
company.
(c) The effecting by an insurance
agent or broker, pension consultant or
investment company Principal
Underwriter of a transaction for the
purchase, with plan assets, of an
insurance or annuity contract or
securities issued by an investment
company.
(d) The purchase, with plan assets, of
an insurance or annuity contract from
an insurance company.
(e) The purchase, with plan assets, of
an insurance or annuity contract from
an insurance company which is a
fiduciary or a service provider (or both)
with respect to the plan solely by reason
of the sponsorship of a Pre-approved
Plan.
(f) The purchase, with plan assets, of
securities issued by an investment
company from, or the sale of such
securities to, an investment company or
an investment company Principal
Underwriter, when such investment
company, Principal Underwriter, or the
investment company investment adviser
is a fiduciary or a service provider (or
both) with respect to the plan solely by
reason of: (1) the sponsorship of a Preapproved plan; or (2) the provision of
Nondiscretionary Trust Services to the
plan; or (3) both (1) and (2).
(g) The receipt, directly or indirectly,
by an Independent Producer of an
Insurance Sales Commission as a result
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of the provision of investment advice
within the meaning of ERISA section
3(21)(A)(ii) and Code section
4975(e)(3)(B), regarding the purchase of
a non-security annuity contract or other
insurance product not regulated by the
Securities and Exchange Commission
(SEC) of an Insurer that is not an
Affiliate, including as part of a rollover
from a Plan to an IRA as defined in
Code section 4975(e)(1)(B) or (C).
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Section IV—Conditions With Respect to
Transactions Described in Section
III(a)–(f)
The following conditions apply solely
to a transaction described in Section
III(a)–(f):
(a) The transaction is effected by the
insurance agent or broker, pension
consultant, insurance company or
investment company Principal
Underwriter in the ordinary course of its
business as such a person.
(b) The transaction is on terms at least
as favorable to the plan as an arm’slength transaction with an unrelated
party would be.
(c) The combined total of all fees,
commissions and other consideration
received by the insurance agent or
broker, pension consultant, insurance
company, or investment company
Principal Underwriter:
(1) For the provision of services to the
plan; and
(2) In connection with the purchase of
insurance or annuity contracts or
securities issued by an investment
company is not in excess of ‘‘reasonable
compensation’’ within the
contemplation of section 408(b)(2) and
408(c)(2) of the Act and sections
4975(d)(2) and 4975(d)(10) of the Code.
If such total is in excess of ‘‘reasonable
compensation,’’ the ‘‘amount involved’’
for purposes of the civil penalties of
section 502(i) of the Act and the excise
taxes imposed by section 4975(a) and (b)
of the Code is the amount of
compensation in excess of ‘‘reasonable
compensation.’’
Section V—Conditions for Transactions
Described in Section III(a) Through (d)
The following conditions apply solely
to a transaction described in subsections
(a), (b), (c) or (d) of section III:
(a) The insurance agent or broker,
pension consultant, insurance company,
or investment company Principal
Underwriter is not
(1) a trustee of the plan (other than a
Nondiscretionary Trustee who does not
render investment advice with respect
to any assets of the plan),
(2) a plan administrator (within the
meaning of section 3(16)(A) of the Act
and section 414(g) of the Code),
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(3) a fiduciary who is authorized to
manage, acquire, or dispose of the plan’s
assets on a discretionary basis, or
(4) for transactions described in
sections III (a) through (d) entered into
after December 31, 1978, an employer
any of whose employees are covered by
the plan.
Notwithstanding the above, an
insurance agent or broker, pension
consultant, insurance company, or
investment company Principal
Underwriter that is affiliated with a
trustee or an investment manager
(within the meaning of section VI(b))
with respect to a plan may engage in a
transaction described in section III(a)
through (d) of this exemption on behalf
of the plan if such trustee or investment
manager has no discretionary authority
or control over the plan assets involved
in the transaction other than as a
Nondiscretionary Trustee.
(b)(1) With respect to a transaction
involving the purchase with plan assets
of an insurance or annuity contract or
the receipt of an Insurance Sales
Commission thereon, the insurance
agent or broker or pension consultant
provides to an independent fiduciary or
IRA owner with respect to the plan prior
to the execution of the transaction the
following information in writing and in
a form calculated to be understood by a
plan fiduciary who has no special
expertise in insurance or investment
matters:
(A) If the agent, broker, or consultant
is an affiliate of the insurance company
whose contract is being recommended,
or if the ability of such agent, broker or
consultant to recommend insurance or
annuity contracts is limited by any
agreement with such insurance
company, the nature of such affiliation,
limitation, or relationship;
(B) The Insurance Sales Commission,
expressed as a percentage of gross
annual premium payments for the first
year and for each of the succeeding
renewal years, that will be paid by the
insurance company to the agent, broker
or consultant in connection with the
purchase of the recommended contract;
and
(C) For purchases made after June 30,
1979, a description of any charges, fees,
discounts, penalties or adjustments
which may be imposed under the
recommended contract in connection
with the purchase, holding, exchange,
termination or sale of such contract.
(2) Following the receipt of the
information required to be disclosed in
subsection (b)(1), and prior to the
execution of the transaction, the
independent fiduciary or IRA owner
acknowledges in writing receipt of such
information and approves the
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transaction on behalf of the plan. Such
fiduciary may be an employer of
employees covered by the plan, but may
not be an insurance agent or broker,
pension consultant or insurance
company involved in the transaction.
Such fiduciary may not receive, directly
or indirectly (e.g., through an Affiliate),
any compensation or other
consideration for his or her own
personal account from any party dealing
with the plan in connection with the
transaction.
(c)(1) With respect to a transaction
involving the purchase with plan assets
of securities issued by an investment
company or the receipt of a Mutual
Fund Commission thereon by an
investment company Principal
Underwriter, the investment company
Principal Underwriter provides to an
Independent fiduciary or IRA owner
with respect to the plan, prior to the
execution of the transaction, the
following information in writing and in
a form calculated to be understood by a
plan fiduciary who has no special
expertise in insurance or investment
matters:
(A) If the person recommending
securities issued by an investment
company is the Principal Underwriter of
the investment company whose
securities are being recommended, the
nature of such relationship and of any
limitation it places upon the Principal
Underwriter’s ability to recommend
investment company securities;
(B) The Mutual Fund Commission,
expressed as a percentage of the dollar
amount of the plan’s gross payment and
of the amount actually invested, that
will be received by the Principal
Underwriter in connection with the
purchase of the recommended securities
issued by the investment company; and
(C) For purchases made after
December 31, 1978, a description of any
charges, fees, discounts, penalties, or
adjustments which may be imposed
under the recommended securities in
connection with the purchase, holding,
exchange, termination or sale of such
securities.
(2) Following the receipt of the
information required to be disclosed in
subsection (c)(1), and prior to the
execution of the transaction, the
independent fiduciary or IRA owner
approves the transaction on behalf of
the plan. Unless facts or circumstances
would indicate the contrary, such
approval may be presumed if the
fiduciary or IRA owner permits the
transaction to proceed after receipt of
the written disclosure. Such fiduciary
may be an employer of employees
covered by the plan, but may not be a
Principal Underwriter involved in the
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transaction. Such fiduciary may not
receive, directly or indirectly (e.g.,
through an affiliate), any compensation
or other consideration for his or her own
personal account from any party dealing
with the plan in connection with the
transaction.
(d) With respect to additional
purchases of insurance or annuity
contracts or securities issued by an
investment company, the written
disclosure required under subsections
(b) and (c) of this section V need not be
repeated, unless—
(1) More than three years have passed
since such disclosure was made with
respect to the same kind of contract or
security, or
(2) The contract or security being
recommended for purchase or the
commission with respect thereto is
materially different from that for which
the approval described in subsections
(b) and (c) of this section was obtained.
Section VI—Conditions for Transactions
Described in Section III(g)
The following conditions apply solely
to a transaction described in subsection
(g) of section III:
(a) The Independent Producer is
authorized to sell annuities from two or
more unrelated Insurers.
(b) The Independent Producer and the
Insurer satisfy the applicable conditions
in Sections VII and IX and are not
ineligible under Section VIII. The
Insurer will not necessarily become a
fiduciary under ERISA or the Code
merely by complying with the
exemption’s conditions.
(c) Exclusions.
The relief in Section III(g) is not
available if:
(1) The Plan is covered by Title I of
ERISA and the Independent Producer,
Insurer, or any Affiliate is:
(A) the employer of employees
covered by the Plan, or
(B) the Plan’s named fiduciary or
administrator; provided however that a
named fiduciary or administrator or
their Affiliate may rely on the
exemption if it is selected to provide
investment advice by a fiduciary who:
(i) is not the Insurer, Independent
Producer, or an Affiliate;
(ii) does not have a relationship to or
an interest in the Insurer, Independent
Producer, or any Affiliate that might
affect the exercise of the fiduciary’s best
judgment in connection with
transactions covered by the exemption;
(iii) does not receive and is not
projected to receive within the current
federal income tax year, compensation
or other consideration for their own
account from the Insurer, Independent
Producer, or an Affiliate in excess of
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two (2) percent of the fiduciary’s annual
revenues based upon its prior income
tax year; or
(iv) is not the IRA owner or
beneficiary; or
(2) The Independent Producer
transaction involves the Independent
Producer and Insurer acting in a
fiduciary capacity other than as an
investment advice fiduciary within the
meaning of ERISA section 3(21)(A)(ii)
and Code section 4975(e)(3)(B).
Section VII—Investment Advice
Arrangement
Section VII(a) requires Independent
Producers to comply with Impartial
Conduct Standards, including a Best
Interest standard, when providing
fiduciary investment advice to
Retirement Investors. Section VII(b)
requires Independent Producers to
provide to Retirement Investors a
written acknowledgement that the
Independent Producer is a fiduciary
under Title I of ERISA and/or the Code,
a written statement of the Best Interest
standard of care, a written description of
the services they will provide and the
products they are licensed and
authorized to sell, and a written
statement of their material Conflicts of
Interest and the amount of the Insurance
Commission that will be paid to them in
connection with the purchase of the
recommended annuity by a Retirement
Investor. In addition, before the sale of
a recommended annuity, Independent
Producers must consider and document
their conclusions as to whether the
recommended annuity is in the Best
Interest of the Retirement Investor.
Independent Producers recommending a
rollover must also provide additional
disclosure as set forth in subsection (b),
below. Section VII(c) requires Insurers
to adopt policies and procedures
prudently designed to ensure
compliance with the Impartial Conduct
Standards and other conditions of this
exemption. Section VII(d) requires the
Insurer to conduct a retrospective
review, at least annually, that is
reasonably designed to detect and
prevent violations of, and achieve
compliance with, the Impartial Conduct
Standards and the terms of this
exemption. Section VII(e) allows
Independent Producers to correct
certain violations of the exemption
conditions and maintain relief under the
exemption. In complying with this
Section VII, the Independent Producer
may reasonably rely on factual
representations from the Insurer, and
Insurers may rely on factual
representations from the Independent
Producer, as long as they do not have
knowledge that such factual
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76027
representations are incomplete or
inaccurate.
(a) Impartial Conduct Standards
(1) The Independent Producer’s
investment advice is, at the time it is
provided, in the Retirement Investor’s
Best Interest. As defined in Section X(b),
advice is in the Retirement Investor’s
Best Interest if it (A) reflects the care,
skill, prudence, and diligence under the
circumstances then prevailing that a
prudent person acting in a like capacity
and familiar with such matters would
use in the conduct of an enterprise of a
like character and with like aims, based
on the investment objectives, risk
tolerance, financial circumstances, and
needs of the Retirement Investor, and
(B) does not place the financial or other
interests of the Independent Producer,
Insurer or any Affiliate, Related Entity,
or other party ahead of the Retirement
Investor’s interests, or subordinate the
Retirement Investor’s interests to those
of the Independent Producer, Insurer or
any Affiliate, Related Entity, or other
party. For example, in choosing between
annuity products offered by Insurers,
whose products the Independent
Producer is authorized to sell, it is not
permissible for the Independent
Producer to recommend a product that
is worse for the Retirement Investor, but
better or more profitable for the
Independent Producer or the Insurer;
(2) The Independent Producer
receives no compensation in connection
with the transaction other than the
Insurance Sales Commission, and the
Insurance Sales Commission does not
exceed reasonable compensation within
the meaning of ERISA section 408(b)(2)
and Code section 4975(d)(2); and
(3) The Independent Producer’s
statements to the Retirement Investor
about the recommended transaction and
other relevant matters are not, at the
time the statements are made, materially
misleading. For purposes of this
subsection, the term ‘‘materially
misleading’’ includes omitting
information that is needed to make the
statement not misleading in light of the
circumstances under which it was
made.
(b) Disclosure
Prior to engaging in a transaction
described in Section III(g), the
Independent Producer provides the
disclosures set forth in paragraphs (1)–
(5) to the Retirement Investor:
(1) A written acknowledgment that
the Independent Producer is a fiduciary
under Title I and the Code, as
applicable, with respect to any
investment recommendation provided
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by the Independent Producer to the
Retirement Investor;
(2) A written statement of the Best
Interest standard of care owed by the
Independent Producer to the Retirement
Investor;
(3) A written description of the
services to be provided and the
Independent Producer’s material
Conflicts of Interest that is accurate and
not misleading in any material respects.
The description will include the
products the Independent Producer is
licensed and authorized to sell. The
description must inform the Retirement
Investor in writing of any limits on the
range of insurance products
recommended. The Independent
Producer must identify the specific
Insurers and specific insurance products
available for recommendation.
(4) A written statement of the amount
of the Insurance Commission that will
be paid to the Independent Producer in
connection with the purchase by a
Retirement Investor of the
recommended annuity. The statement
must disclose the amount of expected
Insurance Sales Commission, expressed
both in dollars and as a percentage of
gross annual premium payments, if
applicable, for the first year and for each
of the succeeding years.
(5) A written statement that the
Retirement Investor has the right to
obtain specific information regarding
costs, fees, and compensation, described
in dollar amounts, percentages,
formulas, or other means reasonably
designed to present materially accurate
disclosure of their scope, magnitude,
nature with in sufficient detail to permit
the Retirement Investor to make an
informed judgment about the costs of
the transaction and about the
significance and severity of the Conflicts
of Interest, and describe how the
Retirement Investor can get the
information, free of charge.
(6) Before the sale of a recommended
annuity, the Independent Producer
considers and documents its
conclusions as to whether the
recommended annuity is in the Best
Interest of the Retirement Investor and
provides that documentation to both the
Retirement Investor and to the Insurer;
(7) Rollover disclosure. Before
engaging in a rollover or making a
recommendation to a Plan participant as
to the post-rollover investment of assets
currently held in a Plan, the
Independent Producer must consider
and document its conclusions as to
whether a rollover is in the Retirement
Investor’s Best Interest and provide that
documentation to both the Retirement
Investor and to Insurer. Relevant factors
to consider must include to the extent
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applicable, but in any event are not
limited to:
(A) the alternatives to a rollover,
including leaving the money in the
Plan, if applicable;
(B) the comparative fees and
expenses;
(C) whether an employer or other
party pays for some or all administrative
expenses; and
(D) the different levels of fiduciary
protection, services, and investments
available.
(6) Independent Producers and
Insurers may rely in good faith on
information and assurances from the
other entities that are not Affiliates as
long as they do not know (or have a
reason to know) that such information is
incomplete or inaccurate.
(8) The Independent Producer is not
required to disclose information
pursuant to this Section VII(b) if such
disclosure is otherwise prohibited by
law.
(c) Policies and Procedures
(1) The Insurer establishes, maintains,
and enforces written policies and
procedures for the review of each
recommendation before an annuity is
issued to a Retirement Investor pursuant
to an Independent Producer’s
recommendation that are prudently
designed to ensure compliance with the
Impartial Conduct Standards and other
exemption conditions. The Insurer’s
prudent review of the Independent
Producer’s specific recommendations
must be made without regard to the
Insurer’s own interests. An Insurer is
not required to supervise an
Independent Producer’s
recommendations to Retirement
Investors of products other than
annuities offered by the Insurer.
(2) The Insurer’s policies and
procedures mitigate Conflicts of Interest
to the extent that a reasonable person
reviewing the policies and procedures
and incentive practices as a whole
would conclude that they do not create
an incentive for the Independent
Producer to place its interests, or those
of the Insurer, or any Affiliate or Related
Entity, ahead of the interests of the
Retirement Investor. The Insurer’s
procedures identify and eliminate
quotas, appraisals, performance or
personnel actions, bonuses, contests,
special awards, differential
compensation, or other similar actions
or incentives that are intended, or that
a reasonable person would conclude are
likely, to result in recommendations
that are not in the Retirement Investor’s
Best Interest, or that subordinate the
interests of the Retirement Investor to
the Independent Producer’s own
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interests, or those of the Insurer, or to
make recommendations based on the
Independent Producer’s considerations
of factors or interests other than the
investment objectives, risk tolerance,
financial circumstances, and needs of
the Retirement Investor.
(3) The Insurer’s policies and
procedures include a prudent process
for determining whether to authorize an
Independent Producer to sell the
Insurer’s annuity contracts to
Retirement Investors, and for taking
action to protect Retirement Investors
from Independent Producers who have
failed or are likely to fail to adhere to
the Impartial Conduct Standards, or
who lack the necessary education,
training, or skill. A prudent process
includes careful review of customer
complaints, disciplinary history, and
regulatory actions concerning the
Independent Producer, as well as the
Insurer’s review of the Independent
Producer’s training, education, and
conduct with respect to the Insurer’s
own products. The Insurer must
document the basis for its initial
determination that it can rely on the
Independent Producer to adhere to the
Impartial Conduct Standards, and must
review that determination at least
annually as part of the retrospective
review set forth in subsection (d) below.
(4) Insurers must provide their
complete policies and procedures to the
Department within 10 business days of
request.
(d) Retrospective Review
(1) The Insurer conducts a
retrospective review, at least annually,
that is reasonably designed to detect and
prevent violations of, and achieve
compliance with the conditions of the
exemption, including the Impartial
Conduct Standards, and the policies and
procedures governing compliance with
the exemption, including the
effectiveness of the supervision system,
the exceptions found, and corrective
action taken or recommended, if any.
The retrospective review must also
include a review of Independent
Producers’ rollover recommendations
and the required rollover disclosure. As
part of this review, the Insurer must
prudently determine whether to
continue to permit individual
Independent Producers to sell the
Insurer’s annuity contracts to
Retirement Investors. Additionally, the
Insurer updates the policies and
procedures as business, regulatory, and
legislative changes and events dictate,
and to ensure they remain prudently
designed, effective, and compliant with
Section VII(c).
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(2) The Insurer annually provides a
written report to a Senior Executive
Officer which details the review.
(3) The Insurer provides to the
Independent Producer the methodology
and results of the retrospective review;
(4) A Senior Executive Officer of the
Insurer certifies, annually, that:
(A) The officer has reviewed the
report of the retrospective review report;
(B) The Insurer has filed (or will file
timely, including extensions) Form 5330
reporting any non-exempt prohibited
transaction discovered by the Insurer in
connection with investment advice
covered under Code section
4975(e)(3)(B), advised the Independent
Producer of the violation and any
resulting excise taxes owed under Code
section 4975, and notified the
Department of Labor of the violation via
email to PTE_84-24@dol.gov.
(C) The Insurer has established
policies and procedures prudently
designed to ensure that Independent
Producers achieve compliance with the
conditions of this exemption, and has
updated and modified the policies and
procedures as appropriate after
consideration of the findings in the
retrospective review report; and
(D) The Insurer has in place a prudent
process to modify such policies and
procedures as set forth in Section
II(d)(1).
(5) The review, report, and
certification are completed no later than
six months following the end of the
period covered by the review.
(6) The Insurer retains the report,
certification, and supporting data for a
period of six years and makes the report,
certification, and supporting data
available to the Department, within 10
business days of request, to the extent
permitted by law.
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(e) Self-Correction
A non-exempt prohibited transaction
will not occur due to a violation of the
exemption’s conditions with respect to
a transaction, provided:
(1) Either the Independent Producer
has refunded any charge to the
Retirement Investor or the Insurer has
rescinded a mis-sold annuity, canceling
the contract and waiving the surrender
charges;
(2) The Independent Producer notifies
the Department of Labor of the violation
and the refund or rescission via email to
PTE_84-24@dol.gov within 30 days of
correction;
(3) The correction occurs no later than
90 days after the Independent Producer
learned of the violation or reasonably
should have learned of the violation;
and
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(4) The Independent Producer notifies
the person(s) at the Insurer responsible
for conducting the retrospective review
during the applicable review cycle and
the violation and correction is
specifically set forth in the written
report of the retrospective review
required under Section VII(d)(2).
Section VIII—Eligibility
(a) Independent Producer
Subject to the timing and scope
provisions set forth in subsection (3),
and the opportunity to be heard as set
forth in subsection (c), an Independent
Producer will be ineligible to rely on the
relief for transactions described in
Section III(g), if within 10 years
preceding the transaction, the
Independent Producer is described in
(1) or (2):
(1) The Independent Producer has
been convicted either:
(A) by a U.S. federal or state court as
a result of any felony involving abuse or
misuse of such person’s employee
benefit plan position or employment, or
position or employment with a labor
organization; any felony arising out of
the conduct of the business of a broker,
dealer, investment adviser, bank,
insurance company or fiduciary; income
tax evasion; any felony involving
larceny, theft, robbery, extortion,
forgery, counterfeiting, fraudulent
concealment, embezzlement, fraudulent
conversion, or misappropriation of
funds or securities; conspiracy or
attempt to commit any such crimes or
a crime in which any of the foregoing
crimes is an element; or a crime that is
identified or described in ERISA section
411; or
(B) by a foreign court of competent
jurisdiction as a result of any crime,
however denominated by the laws of the
relevant foreign or state government,
that is substantially equivalent to an
offense described in (A).
For purposes of this section (a)(1), a
person shall be deemed to have been
convicted of a crime as of the
‘‘conviction date,’’ which is the date of
the judgment of the trial court (or the
date of the judgment of any court in a
foreign jurisdiction that is the
equivalent of a U.S. federal or state trial
court), regardless of whether that
judgment remains under appeal.
(2) The Independent Producer has
received a written ineligibility notice
issued by the Department for:
(A) engaging in a systematic pattern or
practice of violating the conditions of
this exemption in connection with
otherwise non-exempt prohibited
transactions;
(B) intentionally violating, or
knowingly participating in violations of,
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76029
the conditions of this exemption in
connection with otherwise non-exempt
prohibited transactions;
(C) engaging in a systematic pattern or
practice of failing to correct prohibited
transactions, report those transactions to
the IRS on Form 5330, and pay the
resulting excise taxes imposed by Code
section 4975 in connection with nonexempt prohibited transactions
involving investment advice under Code
section 4975(e)(3)(B); or
(D) providing materially misleading
information to the Department in
connection with the conditions of the
exemption.
(3) Ineligibility shall begin six months
after:
(A) the conviction date defined in
Section (a)(1);
(B) the date of the Department’s
written determination under Section
(c)(1)(C) on a petition regarding a
foreign conviction; or
(C) the date of the written ineligibility
notice described in subsection (a)(2).
(4) An Independent Producer shall
become eligible to rely on this
exemption again only upon the earliest
of the following:
(A) the date of a subsequent judgment
reversing such person’s conviction;
(B) 10 years after the person became
ineligible under Section VIII(a)(3) or 10
years after the person was released from
imprisonment as a result of a crime
described in (a)(1) if later; or
(C) the date, if any, the Department
grants an individual exemption which
may impose additional conditions) to
the person permitting its continued
reliance on this exemption,
notwithstanding the conviction.
(b) Insurers
Subject to the timing and scope
provisions set forth in subsection (3),
and the opportunity to be heard as set
forth in subsection (c), an entity will be
ineligible to serve as an Insurer if,
within the 10 years preceding the
transaction:
(1) The Insurer or the Affiliate has
been convicted:
(A) by a U.S. federal or state court of
any felony involving abuse or misuse of
such person’s employee benefit plan
position or employment, or position or
employment with a labor organization;
any felony arising out of the conduct of
the business of a broker, dealer,
investment adviser, bank, insurance
company or fiduciary; income tax
evasion; any felony involving the
larceny, theft, robbery, extortion,
forgery, counterfeiting, fraudulent
concealment, embezzlement, fraudulent
conversion, or misappropriation of
funds or securities; conspiracy or
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attempt to commit any such crimes or
a crime in which any of the foregoing
crimes is an element; or a crime that is
identified or described in ERISA section
411; or
(B) by a foreign court of competent
jurisdiction as a result of any crime,
however denominated by the laws of the
relevant foreign or state government,
that is substantially equivalent to an
offense described in (A).
For purposes of this Section (b)(1), a
person shall be deemed to have been
convicted of a crime as of the
‘‘conviction date,’’ which is the date of
the judgment of the trial court (or the
date of the judgment of any court in a
foreign jurisdiction that is the
equivalent of a U.S. federal or state trial
court), regardless of whether that
judgment remains under appeal.
(2) The Insurer or an Affiliate has
received a written ineligibility notice
issued by the Department for:
(A) engaging in a systematic pattern or
practice of violating the conditions of
this exemption in connection with
otherwise non-exempt prohibited
transactions;
(B) intentionally violating, or
knowingly participating in violation of,
the conditions of this exemption in
connection with otherwise non-exempt
prohibited transactions; or
(C) providing materially misleading
information to the Department in
connection with the conditions of the
exemption.
(3) Ineligibility shall begin six months
after:
(A) the conviction date as defined in
Section (b)(1);
(B) the Department’s written
determination under Section (c)(1)(C)
for a petition regarding a foreign
conviction; or
(C) the date of the written ineligibility
notice described in subsection (b)(2)
above.
(4) An entity shall become eligible to
act as an Insurer under this exemption
again only upon the earliest of the
following:
(A) the date of a subsequent judgment
reversing such person’s conviction;
(B) 10 years after the person became
ineligible under Section VIII(b)(3) or 10
years after the person was released from
imprisonment as a result of a crime
described in (b)(1), if later; or
(C) the date, if any, the Department
grants an individual exemption (which
may impose additional conditions) to
the person permitting its continued
reliance on this exemption,
notwithstanding the conviction.
(c) Opportunity To Be Heard
(1) Foreign Convictions.
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(A) An Insurer, its Affiliate, or an
Independent Producer that has been
convicted by a foreign court of
competent jurisdiction as provided in
subsection (a)(1)(B) or (b)(1)(B), as
applicable, may submit a petition to the
Department that informs the Department
of the conviction and seeks the
Department’s determination that
continued reliance on the exemption
would not be contrary to the purposes
of the exemption. Petitions must be
submitted to the Department within 10
business days after the conviction date
by email at IIAWR@dol.gov.
(B) Following receipt of the petition,
the Department will provide the Insurer
or Independent Producer with the
opportunity to be heard, in person
(including by phone or
videoconference), in writing, or a
combination thereof. The opportunity to
be heard will be limited to one
conference unless the Department
determines in its sole discretion to
allow additional conferences.
(C) Following the hearing, the
Department will issue a written
determination to the Insurer or
Independent Producer, as applicable,
articulating the basis for its
determination whether or not to allow
the Insurer or Independent Producer to
continue relying on PTE 84–24.
(2) Written Ineligibility Notice. Prior
to issuing a written ineligibility notice,
the Department will issue a written
warning to the Independent Producer or
Insurer, as applicable, identifying
specific conduct implicating subsection
(a)(2) or (b)(2), as applicable, and
providing a six-month opportunity to
cure. At the end of the six-month
period, if the Department determines
that the Independent Producer or
Insurer has not taken appropriate action
to prevent recurrence of the
disqualifying conduct, it will provide
the Independent Producer or Insurer
with the opportunity to be heard, in
person (including by phone or
videoconference), or in writing, or a
combination thereof, before the
Department issues the written
ineligibility notice. The opportunity to
be heard will be limited to one
conference unless the Department
determines in its sole discretion to
allow additional conferences. The
written ineligibility notice will state the
basis for the determination that the
Independent Producer or Insurer
engaged in conduct described in
subsection (a)(2) or (b)(2), as applicable,
and has not taken appropriate action to
prevent recurrence of the disqualifying
conduct.
(3) Department’s Considerations. For
hearings under (c)(1) and (c)(2), the
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Department will consider: the gravity of
the offense; the degree to which the
underlying conduct concerned
individual misconduct, or, alternately,
corporate managers or policy; recency of
the conduct at issue; any remedial
measures taken; and other factors the
Department determines in its discretion
are reasonable in light of the nature and
purposes of the exemption.
(d) Alternative Exemptions
An Insurer or Independent Producer
that is ineligible to rely on this
exemption may rely on a statutory or
separate administrative prohibited
transaction exemption if one is available
or seek an individual prohibited
transaction exemption from the
Department. To the extent an applicant
seeks retroactive relief in connection
with an exemption application, the
Department will consider the
application in accordance with its
retroactive exemption policy as set forth
in 29 CFR 2570.35(d). The Department
may require additional prospective
compliance conditions as a condition of
retroactive relief.
Section IX—Recordkeeping
(a) The insurance agent or broker (or
the insurance company whose contract
is being described if designated by the
agent or broker), pension consultant or
investment company Principal
Underwriter, Independent Producer or
Insurer must maintain the records
necessary to enable the persons
described in subsection (a)(2) below to
determine whether the conditions of
this exemption have been met with
respect to a transaction for a period of
six years from the date of the transaction
in a manner that is reasonably
accessible for examination. No
prohibited transaction will be
considered to have occurred solely on
the basis of the unavailability of such
records if they are lost or destroyed due
to circumstances beyond the control of
the responsible party before the end of
the six-year period.
(1) No party, other than the party
responsible for complying with this
section IX, will be subject to the civil
penalty that may be assessed under
ERISA section 502(i) or the excise tax
imposed by Code section 4975(a) and
(b), if applicable, if the records are not
maintained or available for examination
as required by this section IX.
(2) Except as provided in subsection
(3), and notwithstanding any provisions
of ERISA section 504(a)(2) and (b), the
records are reasonably available at their
customary location during normal
business hours for examination by:
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(A) Any authorized employee of the
Department or the Internal Revenue
Service or another state or federal
regulator;
(B) Any fiduciary of a Plan that
engaged in a transaction pursuant to this
exemption;
(C) Any contributing employer and
any employee organization whose
members are covered by a Plan that
engaged in a transaction pursuant to this
exemption; or
(D) Any participant or beneficiary of
a Plan or beneficial owner of an IRA
acting on behalf of the IRA that engaged
in a transaction pursuant to this
exemption.
(3) None of the persons described in
subsection (2)(B)–(D) above are
authorized to examine records regarding
a transaction involving another
Retirement Investor, privileged trade
secrets or privileged commercial or
financial information of the Insurer, or
information identifying other
individuals.
(4) If a party refuses to disclose
information to a person described in
subsection (2)(B)–(D) above on the basis
that the information is exempt from
disclosure, the party must provide a
written notice advising the requestor of
the reasons for its refusal and that the
Department may request that such
information be produced to the
Department by the end of the thirtieth
(30th) day following the request.
(b) A party’s failure to maintain the
records necessary to determine whether
the conditions of this exemption have
been met will result in the loss of the
exemption only for the transaction or
transactions for which records are
missing or have not been maintained.
Such failure does not affect the relief for
other transactions if the responsible
party maintains required records for
such transactions in compliance with
this section IV.
Section X—Definitions
For purposes of this exemption, the
terms ‘‘insurance agent or broker,’’
‘‘pension consultant,’’ ‘‘insurance
company,’’ ‘‘investment company,’’ and
‘‘Principal Underwriter’’ mean such
persons and any Affiliates thereof. In
addition, for purposes of this
exemption:
(a) ‘‘Affiliate’’ of a person means:
(1) Any person directly or indirectly
through one or more intermediaries,
controlling, controlled by, or under
common control with the person (For
this purpose, ‘‘control’’ would mean the
power to exercise a controlling
influence over the management or
policies of a person other than an
individual);
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(2) Any officer, director, partner,
employee, or relative (as defined in
ERISA section 3(15)), of the person; and
(3) Any corporation or partnership of
which the person is an officer, director,
or partner.
(b) Advice is in a Retirement
Investor’s ‘‘Best Interest’’ if such advice
(A) reflects the care, skill, prudence, and
diligence under the circumstances then
prevailing that a prudent person acting
in a like capacity and familiar with such
matters would use in the conduct of an
enterprise of a like character and with
like aims, based on the investment
objectives, risk tolerance, financial
circumstances, and needs of the
Retirement Investor, and (B) does not
place the financial or other interests of
the Independent Producer, Insurer or
any Affiliate, Related Entity, or other
party ahead of the interests of the
Retirement Investor, or subordinate the
Retirement Investor’s interests to those
of the Independent Producer, Insurer or
any Affiliate, Related Entity, or other
party.
(c) A ‘‘Conflict of Interest’’ is an
interest that might incline an
Independent Producer—consciously or
unconsciously—to make a
recommendation that is not in the Best
Interest of the Retirement Investor.
(d) ‘‘Independent Producer’’ means a
person or entity that is licensed under
the laws of a state to sell, solicit or
negotiate insurance contracts, including
annuities, and that sells to Retirement
Investors products of multiple
unaffiliated insurance companies but is
not an employee of an insurance
company (including a statutory
employee under Code section 3121).
(e) ‘‘Individual Retirement Account’’
or ‘‘IRA’’ means any plan that is an
account or annuity described in Code
section 4975(e)(1)(B) through (F).
(f) ‘‘Insurer’’ means an insurance
company qualified to do business under
the laws of a state, that: (A) has obtained
a Certificate of Authority from the
insurance commissioner of its
domiciliary state which has neither
been revoked nor suspended; (B) has
undergone and shall continue to
undergo an examination by an
independent certified public accountant
for its last completed taxable year or has
undergone a financial examination
(within the meaning of the law of its
domiciliary state) by the state’s
insurance commissioner within the
preceding five years, (C) is domiciled in
a state whose law requires that an
actuarial review of reserves be
conducted annually and reported to the
appropriate regulatory authority; (D) is
not disqualified or barred from making
investment recommendations by any
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76031
insurance, banking, or securities law or
regulatory authority (including any selfregulatory organization), that retains the
Independent Producer as an
independent contractor, agent or
registered representative.
(g) ‘‘Insurance Sales Commission’’
means a sales commission paid by the
Insurance Company or an Affiliate to
the Independent Producer for the
service of recommending and/or
effecting the purchase or sale of an
insurance or annuity contract, including
renewal fees and trailing fees, but
excluding revenue sharing payments,
administrative fees or marketing
payments, payments from parties other
than the Insurance Company or its
Affiliates, or any other similar fees.
(h) The term ‘‘Mutual Fund
Commission’’ means a commission or
sales load paid by either the Plan or the
investment company for the service of
effecting or executing the purchase of
investment company securities, but
does not include a 12b–1 fee, revenue
sharing payment, administrative fee, or
marketing fee.
(i) The term ‘‘Nondiscretionary Trust
Services’’ means custodial services,
services ancillary to custodial services,
none of which services are
discretionary, duties imposed by any
provisions of the Code, and services
performed pursuant to directions in
accordance with ERISA section
403(a)(1).
(j) The term ‘‘Nondiscretionary
Trustee’’ of a plan means a trustee
whose powers and duties with respect
to the plan are limited to the provision
of Nondiscretionary Trust Services. For
purposes of this exemption, a person
who is otherwise a Nondiscretionary
Trustee will not fail to be a
Nondiscretionary Trustee solely by
reason of his having been delegated, by
the sponsor of a Pre-approved Plan, the
power to amend such plan.
(k) ‘‘Plan’’ means any employee
benefit plan described in ERISA section
3(3) and any plan described in Code
section 4975(e)(1)(A).
(l) The term ‘‘Pre-approved Plan’’
means a plan which is approved by the
Internal Revenue Service pursuant to
the procedure described in Rev. Proc.
2017–44, 2017–29 I.R.B. 92, or its
successors.
(m) A ‘‘Principal Underwriter’’ means
a principal underwriter as that term is
defined in section 2(a)(29) of the
Investment Company Act of 1940 (15
U.S.C. 80a–2(a)(29)).
(n) A ‘‘Related Entity’’ is any party
that is not an Affiliate, but in which the
Independent Producer has an interest
that may affect the exercise of its best
judgment as a fiduciary.
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(o) ‘‘Retirement Investor’’ means:
(1) A participant or beneficiary of a
Plan with authority to direct the
investment of assets in their account or
to take a distribution;
(2) The beneficial owner of an IRA
acting on behalf of the IRA; or
(3) A fiduciary acting on behalf of a
Plan or an IRA.
(p) A ‘‘Senior Executive Officer’’ is
any of the following: the chief
compliance officer, the chief executive
officer, president, chief financial officer,
or one of the three most senior officers
of the Insurer.
Signed at Washington, DC, this 24th day of
October, 2023.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits
Security Administration, U.S. Department of
Labor.
[FR Doc. 2023–23781 Filed 11–2–23; 8:45 am]
BILLING CODE 4510–29–P
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Part 2550
[Application No. D–12094]
ZRIN 1210–ZA34
Proposed Amendment to Prohibited
Transaction Exemptions 75–1, 77–4,
80–83, 83–1, and 86–128
Comment Instructions
Employee Benefits Security
Administration (EBSA), U.S.
Department of Labor.
ACTION: Notice of Proposed Amendment
to Prohibited Transaction Exemptions
75–1, 77–4, 80–83, 83–1, and 86–128.
AGENCY:
This document contains a
notice of pendency before the
Department of Labor (the Department) of
proposed amendments to Prohibited
Transaction Exemptions (PTEs) 75–1,
77–4, 80–83, 83–1, and 86–128,
exemptions from certain prohibited
transaction provisions of the Employee
Retirement Income Security Act of 1974
(ERISA) and the Internal Revenue Code
of 1986 (the Code). The amendments
would affect participants and
beneficiaries of plans, IRA owners, and
certain fiduciaries of plans and IRAs.
DATES: Public Comments. Comments are
due on or before January 2, 2024.
Public Hearing. The Department
anticipates holding a public hearing
approximately 45 days following the
date of publication in the Federal
Register. Specific information regarding
the date, location, and submission of
requests to testify will be published in
a notice in the Federal Register.
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SUMMARY:
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Applicability Date. The Department
proposes to make the final amendment
effective 60 days after it is published in
the Federal Register.
ADDRESSES: All written comments
concerning the proposed amendments
should be sent to the Employee Benefits
Security Administration, Office of
Exemption Determinations, U.S.
Department of Labor through the
Federal eRulemaking Portal and
identified by Application No. D–12094:
Federal eRulemaking Portal: https://
www.regulations.gov. at Follow the
instructions for submitting comments.
Docket: For access to the docket to
read background documents, including
the plain-language summary of the
proposal of not more than 100 words in
length required by the Providing
Accountability Through Transparency
Act of 2023, or comments, go to the
Federal eRulemaking Portal at https://
www.regulations.gov.
See SUPPLEMENTARY INFORMATION
below for additional information
regarding comments.
FOR FURTHER INFORMATION CONTACT:
Susan Wilker, telephone (202) 693–
8540, Office of Exemption
Determinations, Employee Benefits
Security Administration, U.S.
Department of Labor (these are not tollfree numbers).
SUPPLEMENTARY INFORMATION:
Warning: All comments received will
be included in the public record
without change and will be made
available online at https://
www.regulations.gov, including any
personal information provided, unless
the comment includes information
claimed to be confidential or other
information whose disclosure is
restricted by statute. If you submit a
comment, EBSA recommends that you
include your name and other contact
information, but DO NOT submit
information that you consider to be
confidential, or otherwise protected
(such as Social Security number or an
unlisted phone number), or confidential
business information that you do not
want publicly disclosed. However, if
EBSA cannot read your comment due to
technical difficulties and cannot contact
you for clarification, EBSA might not be
able to consider your comment.
Additionally, the https://
www.regulations.gov website is an
‘‘anonymous access’’ system, which
means EBSA will not know your
identity or contact information unless
you provide it. If you send an email
directly to EBSA without going through
https://www.regulations.gov, your email
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address will be automatically captured
and included as part of the comment
that is placed in the public record and
made available on the internet.
Background
As described elsewhere in this edition
of the Federal Register, the Department
is proposing to amend the regulation
defining when a person renders
‘‘investment advice for a fee or other
compensation, direct or indirect’’ with
respect to any moneys or other property
of an employee benefit plan, for
purposes of the definition of a
‘‘fiduciary’’ in section 3(21)(A)(ii) of the
Employee Retirement Income Security
Act of 1974 (ERISA or the Act) and in
section 4975(e)(3)(B) of the Internal
Revenue Code (Code). The Department
is also proposing, elsewhere in this
edition of the Federal Register, to
amend prohibited transaction
exemption (PTE) 2020–02 to provide
additional clarity for advice fiduciaries
and additional protections for plans and
investors and PTE 84–24 to address
specific issues that financial institutions
face complying with the conditions of
PTE 2020–02 when distributing
annuities through independent agents.
The Department is hereby proposing
amendments to existing PTEs 75–1, 77–
4, 80–83, 83–1, and 86–128 that
currently provide relief for investment
advice fiduciaries to receive
compensation when plans and IRAs
enter into certain transactions
recommended by the fiduciaries as well
as certain related transactions. The
ERISA and Code provisions at issue
generally prohibit fiduciaries with
respect to employee benefit plans and
individual retirement accounts (IRAs)
from engaging in self-dealing in
connection with transactions involving
these plans and IRAs. The proposed
amendments would remove fiduciary
investment advice, as defined under
ERISA and in a proposed regulation
issued by the Department that is found
elsewhere in this issue of the Federal
Register, from the covered transactions
in each exemption and make certain
other administrative changes. The
Department is proposing these
amendments on its own motion,
pursuant to its authority under ERISA
section 408(a) and Code section
4975(c)(2) and in accordance with
procedures set forth in 29 CFR part
2570, subpart B (76 FR 66637 (October
27, 2011)).1
1 Reorganization Plan No. 4 of 1978 (5 U.S.C.
App. 1 (2018)) generally transferred the authority of
the Secretary of the Treasury to grant administrative
exemptions under Code section 4975 to the
Secretary of Labor.
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